Why Ethereum Transaction Fees Are Skyrocketing Again?

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Written By: InvestingCube
Reviewed By: Mohamed Yonis
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  • Ethereum’s fees are skyrocketing again making life incredibly difficult for users with transaction fees multiplying recently. Here are the reasons why.

Ethereum’s fees are skyrocketing again, and it’s making life incredibly difficult for anybody that uses the network regularly. 

A common theme for Ethereum users, transaction fees for standard transactions, and smart contract operations have multiplied severally in recent months as the markets sprung back to life. 

Now, users are again left wondering whether a fix is in the works or if they need to migrate their activities to one of the numerous less congested chains. Here, we look at the current situation and some of the solutions in the works to resolve it. 

Ethereum Fees Are Rising

Despite its incredible popularity as a smart contract platform, Ethereum is currently suffering from a significant challenge that is gradually reducing the utility and desirability of the platform — transaction fees are too high. 

While Ethereum transaction fees are relatively reasonable during periods of regular activity, they can shoot through the roof when the network experiences any increased load — such as what it’s experiencing at the moment. 

Thanks to the rapid proliferation of decentralized exchanges like Uniswap, SushiSwap, and Curve, on-chain trading activity has skyrocketed. Combine this with the recent meteoric growth of Ethereum-based games and DeFi applications — many of which contribute significant load to the network — and you’ve got a recipe for exorbitant fees.

Since there is limited space in each Ethereum block and competition for rapidly confirmed transactions is rising, users are forced to pay ever-higher fees to secure space in the next block. This has manifested as almost perpetually high fees during busy periods, despite no significant change in the absolute number of transactions submitted to the network. 

The above poses a significant obstacle to retail adopters and less well-heeled investors and traders, who are put off by the massive fees needed to do practically anything on the Ethereum network. 

Solutions Are in the Works

QAN, a new quantum-resistant blockchain platform, could be set to pose an attractive solution to the problem by denominating fees in a fixed amount of US dollars (USD). 

As one of the most prominent up-and-coming competitors to Ethereum, QAN is designed to make creating and deploying the next generation of decentralized applications as open and accessible as possible. It achieves this through its upcoming support for smart contracts in multiple programming languages, 5-minute deployment features, and energy-conserving consensus systems. 

By making it clear exactly how much users can expect to pay in fees while cutting fees down to just a tiny fraction of what they are on Ethereum, QAN hopes to make deploying applications a far less costly and unpredictable situation. 

Other platforms, including Celer’s Layer2.finance, also provide an option to avoid or mitigate Ethereum’s current fee dilemma — albeit in a completely different way. Instead, Layer2.finance allows users to access various popular DeFi platforms (including Aave and Compound) at a much lower cost by securely pooling together user funds and conducting transfers on its second-layer chain using rollups technology. 

By aggregating funds in this way, users can easily move their assets between platforms at a fraction of the cost and only need to pay a fee on Ethereum when they settle their funds. 

Did the Recent Update Help?

In early August, an Ethereum network upgrade known as EIP-1559 went into effect with the London hard fork. 

The new EIP-1559 update replaces the original auction-style fee market with an algorithmic gas price mechanic. It was supposed to reduce volatility in gas fees, increase predictability, and increase the efficiency of the overall market. 

However, while it may have improved the predictability of fees, it has seemingly done very little to reduce them — which is the primary concern many Ethereum users face today. 

Indeed, according to data from BitInfoCharts, the average daily transaction fee now sits at a whopping 0.01 ETH (~$41 at current rates). Since the fork was activated almost exactly a month ago, fees have tripled. 

The figures look even worse when you consider the cost of interacting with popular DeFi apps like Uniswap or Balancer — where you can be expected to pay $50-$70 a pop in transaction fees. With these figures in place, it becomes clear that EIP-1559 has done very little to make interacting with the Ethereum network a less costly task.

This post was last modified on Oct 19, 2021, 20:51 BST 20:51

Written By: InvestingCube
Reviewed By: Mohamed Yonis

InvestingCube is a news site providing free financial market news, analysis, and education. Its purpose is to empower Forex, commodity, cryptocurrency, and indices traders and investors with news and actionable analysis at the right time.

Published by
Written By: InvestingCube
Reviewed By: Mohamed Yonis