Sunday, December 5

Ethereum gas rates skyrocket 1,200% since January

In just 11 months, Ethereum gas rates have grown 1,200%. In January of this year, the gas rates for transacting within this network were just $ 3.3. However, at press time they exceed $ 43 for simple transactions, according to data de Bitcoin InfoCharts.

The highest point of Ethereum gas rates has been $ 70, in the month of May. Although many users are willing to pay the high fees charged by the network, these exorbitant sums have prompted many others to seek new alternatives.

Ethereum at the crossroads: transactions cost an average of $ 15

Gas, the great dilemma of Ethereum

Ethereum is the blockchain network par excellence for the development of DApps and DeFi, but its extremely high gas rates have increased the interest of users for other more scalable and accessible chains. A few days ago, Zhu Su, co-founder and CEO of hedge fund Three Arrows Capital, criticized fstrongly the high gas rates of the network and the inactivity of the developers to provide a prompt solution to this problem.

Zhu Su said that he had abandoned Ethereum, because his culture suffers from the dilemma of the founders, who have become too rich. Although Su has already retracted his comments, he noted that he has become an Avalanche investor and that neither he nor other users can be embarrassed to look to other projects.

For the co-founder of Three Arrow Capital, Ethereum has been the cradle of innovation that has given life to a new generation of financial products, known as DeFi, but its excessive gas fees are affecting the development of the project. Antonio Juliano, founder of dYdX, support in part the claims made by Su.

Rates and network traffic

Coin Metrics, a firm focused on analyzing data in the crypto industry, published a report where he talks about gas fees on Ethereum. In this report, Coin Metrics compared the gas rates of this blockchain with flights, indicating that these are cheaper at 5:00 am than at noon, when there is greater demand.

Coin Metrics explained that Ethereum fees are highly related to network traffic, so they vary based on time and day of the week. Specifically, the firm noted that since the activation of EIP-1559, gas rates on Ethereum tend to be higher during US business hours.

London Update and EIP-1559

Ethereum developers activated the London update, which contained the EIP-1559 enhancement proposal, last August. This improvement proposal caused great controversy among developers, the crypto community and ethers miners, due to the changes it would introduce to the network. EIP-1559 eliminated the gas rate auction mechanism in the network and replaced it with a base rate calculated using an algorithm.

Now when users trade on Ethereum, they have to pay said base fee to miners. However, as Coin Metrics explains, the base rate changes according to the demand for block space and the traffic that exists at a certain moment within the chain.

Ethereum receives London update priced over $ 2,600

The pattern determined by Coin Metrics indicates that in the morning hours in the United States and on weekends, the base fee for Ethereum tends to be lower. Up to 50% less than the existing base rate during business hours or on weekdays, when they are triggered. Although developers expected to reduce commissions on the network with the activation of EIP-1559, the reality is that gas rates continue to rise.

In March of this year, the analytics firm had published a report pointing out that the real solution to Ethereum’s high gas fees was the development of Ethereum 2.0. Or, failing that, more scalable second-layer networks.

Ethereum 2.0 and Layer 2 solutions

The root of Ethereum’s high gas tariff problem stems from its own success. The network, which processes about 14 transactions per second (TPS), is being the victim of its own adoption and growth. According data From The Block Research, there are currently about 1.26 million ETH transactions per day.

High demand for Ethereum is congesting the network. In order for their transactions to be processed as quickly as possible, users with higher possibilities pay higher commissions, motivating miners to prioritize and process their transactions before others and raising gas rates accordingly. Although EIP-1559 introduced a base gas rate, users can still pay a kind of tip to miners on the network.

Coin Metrics highlights that the implementation of second layer networks, such as Polygon and Optimism, are viable alternatives for Ethereum users to escape high commissions. Polygon indicated that Ethereum’s new scalable blockchain, based on the Proof of Stake (PoS) consensus protocol, will be the definitive solution to congestion problems and high gas rates on this network.

Altair arrives, the update that brings the merger between Ethereum and Ethereum 2.0 closer

According to the developers’ roadmap, Ethereum 2.0 could start rolling out next year. Recently, the developers activated the Altair update on the Ethereum 2.0 Beacon Chain, bringing the merger between ETH and ETH 2.0 closer.

Deflationary Ethereum

On the other hand, with the activation of the London update and the EIP-1559, the burning of ethers began, which has made the cryptocurrency deflationary at times. To date, more than 1 million ethers have been burned, valued at more than 4.24 billion dollars.

Developers and analysts note that Ethereum will start to go completely deflationary when Ethereum 2.0 is activated, due to the fact that the rewards that validators will receive will be less than those that miners currently receive.

Scalable and accessible blockchains

Ethereum has gained great competition in recent years. Blockchain developers and even some Ethereum developers have started creating their own projects to offer new alternatives and better features to their users. Currently, its most powerful adversaries are Cardano, Polkadot, Avalanche, Algorand and the Binance Smart Chain, which offer more scalable and economical solutions to operate and manage value.

Ethereum 2.0, the blockchain where new finance and money will be built

Also, with the NFT boom, scalability has become a real necessity. The creators of NFT have received various criticisms for using Ethereum to develop their non-fungible tokens, due to the high fees and energy consumption of the current PoW network. Thus, chains like Flow and Solana have become the best and most feasible options for creating and minting NFTs.

Safety and excellence

However, despite its limitations, the security and excellence that Ethereum shows, make this blockchain one of the preferred ones for institutional investors.

You can also follow us on our channels Telegram and Twitter.

Leave a Reply

Your email address will not be published. Required fields are marked *