Gas fees for Ethereum transactions have been a hot subject due to their volatility and the fact that they may be quite expensive at times. Users think the network’s costs render it unworkable, which leaves the door open for an “ETH killer” to take over as the principal execution platform for smart contracts. When it comes to the blockchain’s central pillar of inclusivity, the obligation to pay hefty transaction fees is a serious setback.
High transaction costs are an impediment to many. Because of its high cost, Ethereum cannot be discounted. It’s important to comprehend the network’s cost structure and recent advances to have a sense of this perspective.
In What Way Does Gas Work?
The Ethereum network relies on gas to power transactions. A transaction on the Ethereum blockchain incurs a cost in gas. Depending on the intricacy of the transaction, gas costs might vary widely. For example, a simple transfer of Ethereum (ETH) uses less gas than transferring ERC tokens or exchanging assets on an ETH-native DEX.
There is a maximum amount of gas that a block on the network may receive before it becomes invalid (this is called a gas limit) and a variety of elements that influence how much gas a block may hold over time. As a result, no single block will include all of the transactions that have occurred so far.
Miners verifying transactions prioritize those with the most gas (reward) first, because gas is required for every operation on the network, and each block has a cap on how much gas may be utilized. Others are moved to the back of the queue or aren’t even considered at all. Look at it as a bid at the auction. As the number of users bidding on restricted space per block increases, so does the fee.
High ETH Fees: What Do They Mean?
Most cryptocurrency users don’t want to spend $15, $75, or $200 each time they make a transaction. The long-awaited release of Ethereum 2.0, a system-wide upgrade that will allow the blockchain to grow in size, is still to come. However, the current high fees show that ETH block space is highly valued by users. Even if high fees are only in effect for a short time, it’s worth considering why people put up with them in the first place.
Ethereum users may utilize BSC, Solana, or other smart contract platforms to perform the same transaction at a fraction of the price. Because they feel Ethereum is a better platform and are prepared to pay more for it, the great majority of people still use it. This shows that fees aren’t a liability, as many people believe. Rather, this is a sign of Ethereum’s tenacity, which other “ETH killers” lack.
Why Do So Many People Continue to Use Ethereum?
The fact that Ethereum is mostly decentralized is one of the fundamental reasons it is still better than its competitors and, hence, worth the price. Decentralization is critical to network security and preventing a chain from being hijacked by those who validate it. Rather than focusing on the security of the chain’s smart contracts, network security focuses on the security of the blockchain itself. Finally, the security of a contract on any chain is only as good as the developer who built it.
This doesn’t always indicate that other chains are less decentralized. It is more likely that validators will work together or individually to reverse transactions, rearrange blocks, and perform other malicious operations using other chains. And the most decentralized smart contract blockchain is Ethereum, according to a comparison of its competitors.
With Ethereum’s current PoW (proof-of-work) consensus architecture, anybody with the capacity to set up a miner may validate transactions. Decentralization and network security both benefit from this low barrier to entry. Moreover, PoW needs computational input to authorize transactions, which displaces control over supply from control over the network. Validators can’t just buy additional ETH to amass greater network power. In order to take over the network, they must instead pay for more than half of its entire processing power. To attack a PoW network, the cost of doing so is prohibitively expensive, and the network (and, hence, the investment made to gain the processing capacity) will be destroyed.
After the changeover to PoS (proof-of-stake) consensus, a user will need to purchase 32 ETH in order to verify the network. This is equivalent to around $84,400 at the current market price. Ethereum’s decentralization may suffer if ETH 2.0 reduces the number of validators, but this is a small cost compared to what would be needed to validate transactions once ETH 2.0 goes live.
The high cost of ETH has sparked new developments in and around the whole ETH ecosystem. ETH 2.0 (Serenity) is an update to the network that places greater emphasis on the efficiency, sustainability, and scalability of the system. In the heart of the upgrade, the PoW consensus process is replaced with PoS. To lower its environmental effect and enable scaling features, PoS will allow ETH 2.0 to degrade its network security with minimal sacrifices.
With sharding, the goal is to reduce costs while simultaneously increasing flexibility and scalability. However, given the network’s gas fee structure, if demand rises, the net impact on fees might be negligible or negative in some cases. The network will be able to handle 100,000 transactions per second if it is split into 64 shards. For the time being, the network’s current capacity is 30 transactions per second. This feature’s implementation timetable, on the other hand, is as yet mainly unclear.
Layer 2s (L2s) has helped ETH scale by reducing transaction costs and increasing the throughput. In contrast to the Ethereum mainnet (Layer 1), which is vulnerable to a number of issues, transactions on L2 don’t take place on the Ethereum blockchain.
Uniswap and CEX.IO, two of the most popular decentralized finance (DeFi) platforms, have both recently opted for layer 2 scaling solutions. Even though Ethereum L2s is still in the early stages of development, the total value locked up in them (TVL) has surpassed $5.5 billion (about 1.7 million ETH spread across the ecosystem).
Bigger Volume and Other Improvements
At times, Ethereum’s unpredictable gas costs might make the network inaccessible. A strong message has emerged from the network’s continued use despite high fees, which contrasts with the emergence of layer 2 and other Ethereum advances. Users’ high regard for the network is demonstrated by high ETH fees, which are being handled in a variety of ways. The ecosystem’s usability and reach will continue to improve as capital inflows continue and more people access it.