The high gas price of Ethereum has consistently been a controversial affair, not only for ETH users but for the entire community of cryptocurrency. Critics often address this issue and consider it one of the most fatal flaws of Ethereum. Creating wide opportunities for “ETH killers” to dethrone it as the primary smart contract execution platform. But as a matter of fact, Ethereum is the second most popular cryptocurrency after Bitcoin. Even though investors and traders know the fact very well that free transactions are not something that the industry is known for, the exorbitant Ethereum gas fees are something that pisses off most investors. On top of everything, the requirement to pay hefty transaction fees just to execute one transaction undermines blockchain technology’s motto of being all-inclusive.
Not all users are capable of paying such exorbitant transaction fees. But Ethereum cannot be written off just because of its high transaction cost. To understand this perspective, you should have a deep understanding of the network’s fee mechanism and the innovations currently being developed and deployed.
What is Ethereum gas and how does it work?
Gas is a kind of fuel needed to conduct transactions on the Ethereum network. When you perform a transaction on the Ethereum blockchain, ‘gas’ refers to the cost required to execute the transaction. Transaction costs vary depending upon the type of transaction and its complexities. For instance, a simple transfer of ETH requires less gas than transferring ERC tokens or swapping assets on an ETH-native decentralized exchange (DEX).
Each block on the network has a gas limit, which is the upper bound on the amount of gas it can accept before it becomes invalid. Many factors influence the gas limit of blocks, and it keeps changing over time. Thus, not all the transactions end up in a given block at any point in time. Since each action on the Ethereum network requires gas, and there is a gas limit on every transaction, miners confirming transactions prefer those with the highest gas over others. The remaining transactions are pushed to the later blocks or do not get selected at all. Thus, we can say that users bid for block space by paying gas fees. This dynamic results in increasing the cost of network fees when a large number of users bid on a limited number of spaces per block.
Why do users prefer Ethereum over other platforms?
Not all crypto users are capable enough to spend $10, $50, or $150 per transaction. High fees show that users value ETH block space at a massive premium. Higher Ethereum prices may be temporary, but it should be thought-provoking to you why users still prefer Ethereum networks despite being too costly.
ETH users can use Solana, BSC, or any other smart contract platform to perform the same transaction for pennies on the dollar. But the majority of crypto users still prefer Ethereum because they believe it to be a better platform and are willing to pay a premium to use this blockchain network. This is a positive indication that higher cost is not a weakness of this platform as people think. Ethereum’s fairly decentralized system makes it superior to its counterparts, making it worth the cost. Decentralization is key for network security, as it prevents the chain from being hacked by those validating it. This doesn’t mean that other networks are less decentralized. With counterparts of Ethereum, there is a greater probability that validators are either individually or collectively working to reorganize blocks, reverse transactions, and carry out other malicious actions. Comparative analysis of Ethereum and its other counterparts suggests that Ethereum is the most decentralized smart contract blockchain in the space.
Anyone capable of setting up a miner can validate Ethereum transactions with its current proof-of-work (PoW) consensus model. This low-barrier entry makes the system more decentralized and more secure. Furthermore, computational input is required to approve the transaction, which dislocates control over supply from control over the network. Validators cannot purchase more ETH to gain outsized power over the Ethereum network blockchain. Instead, to take it over, validators must purchase more computational power than 50% of the network’s total. The high incremental cost of doing so would destroy the network, thus disincentivizing validators of PoW networks to attack it.
Will Ethereum’s gas fees decline?
Experts believe that if the migration from its current PoW consensus mechanism to PoS won’t occur, the gas fees would remain consistently high. It does not seem like a feasible option for the ETH token, as there are already several cryptocurrencies available on the market that offer faster transactions at lower fees. These alternatives are the biggest competitors to Ethereum. But Ethereum users do not need to worry regarding the crypto’s diminishing market dominance. There are some possible reasons that might lead to lower gas fees.
The most prominent and possible reason among all is the decreasing demand for Ethereum block space. Since blocks hold a limited amount of space for transactions, investors start bidding up the prices when there is high congestion. Ethereum investors begin bidding higher and higher in order for their transactions to be processed efficiently in the next block. On the flip side, when the activity on the network decreases, the network lowers the requirement for gas to reflect the demand.
Another major possible reason that might have led to declined gas fees is that NFTs have slowed down. But how are NFTs and Ethereum connected? Well, the NFT marketplace OpenSea has been the biggest gas user on the Ethereum network in recent months. The decline in NFT transactions may lead to a decline in Ethereum gas fees. It’s not only OpenSea that is utilizing Ethereum’s network, but Uniswap is also one of the most popular decentralized exchanges on the same network, and that too, has been witnessing a decline in transactions since last November.
Innovations in Ethereum
Innovations are taking place, part by part, in and around Ethereum, as it has a high cost. The upgraded network ETH 2.0, or Serenity, focuses on scalability, sustainability, and efficiency. The transition from its current PoW consensus mechanism to PoS will allow ETH 2.0 to reduce its environmental impact. This will implement scalability features without compromising the network security. The sharding method will help target lower fees and better scalability. If demand keeps rising, the gross impact on fees could be marginal or negative in some instances, as per the network’s gas fee mechanism. However, the rollout date of these features is still unknown.
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