The crypto space experienced tremendous momentum in 2021. One of the most successful cryptocurrencies of 2021 is Ethereum. Ethereum is also one of the most talked-of cryptocurrencies. One of the main topics of discussion concerning Ethereum is its high transaction costs. In My 2021, Ethereum experienced its highest transaction costs. While the fees have been reduced, they are still a significant issue in the crypto space.
In the crypto world, transaction costs are also known as gas fees. Ethereum creators have been scrambling to resolve the issue of high gas fees. At the end of 2021, Vitalik Buterin, one of Ethereum’s co-founders, proposed a few suggestions for resolving the gas fee issues.
Why are Ethereum gas fees so high?
The affiliation of Ethereum with the DEX trading platform is one of the reasons for its high transaction costs. All transactions in the DEX trading platform are recorded directly on the specific blockchain. A large number of transactions on the platform stresses the network. This leaves it with no space for completing transactions. The transactions are put on hold to resolve this issue as they await confirmation. Therefore, higher fees are charged to fasten the confirmation process.
Ethereum allows miners to reject transactions if the gas fees are too high. However, miners who need to transact urgently and cannot wait for validations have to pay higher fees. Ether allows users to determine their gas price. However, most miners assume that higher transaction fees offer greater rewards. To some extent, this is true. Miners that accept high gas fees do not have to wait for their transactions to get confirmed. On the other hand, miners that opt for low fees risk having their transactions rejected. They also have to wait a long time for transaction confirmation.
Another factor that affects ETH gas costs is its value. This means that if the ETH value rises against the US dollar, its gas fees will also increase. For instance, ETH’s value in Mar 2021 raised significantly. This caused the all-time high Ethereum gas costs.
It is also worth understanding that the type of smart contract executed on the Ethereum blockchain also affects the gas fees. This means that the gas fees for transferring Ethereum are more than transferring USDC and ERC20 tokens. The same applied to asset withdrawal from platforms like Metamask and Aave.
Vitalik Butin partnered with Ansgar Dietrick, one of Ethereum’s developers, released a proposal for improving Ethereum in November 2021. The proposal was designed as a temporary solution to the gas fee challenges of Ethereum. The proposal suggests Layer 2 Scaling solutions for resolving the issue. This solution aims to reduce the costs of natural gas. However, it is a temporary solution as it looks for powerful and permanent solutions.
In a statement, Butin explained that every resource within the Ethereum Virtual Machine requires varying gas consumption. However, the platform can simplify its fee structure by calculating various gas costs depending on resource consumption.
Buterin’s proposed gas fee framework
Ethereum currently employs mechanisms that consume the same amount of gas for different purposes across the network. The platform encourages users to apply different resources for varying scenarios. When users apply the same resources for different scenarios, they pay more money than necessary.
The new fee structure will help create a fair framework where the gas fees depend on the complexity of the transactions. Simply put, users will spend varying amounts for varying activities like minting and calldata transactions.
In Buterin’s proposal, he suggested two techniques. The first one is where the gas prices for resources like storage consumption are calculated by dividing the basic charge by the base fee. The alternative is setting a base cost for resource usage at a standard amount. He also proposes that the priority fees are calculated as a percentage of the basic fee.
Buterin intends to provide Ethereum with an additional security layer and a thorough cost structure.
One of the reasons Ethereum’s leaders are striving to resolve the gas fee issue is because it is affecting its success. The high transaction fees are deterrent to retailers and developers attempting to explore the Ethereum market. The contest between blockchain platforms is also becoming more exciting. This means that Ethereum risks losing to its competitors if something is not done about the gas fees.