Gas fees are so high due to Ethereum’s popularity among the crypto smart contract platforms. Gas fees have been increasing exponentially and are highest when there’s the most network activity. This article will discuss exactly what makes eth gas fees so high, what gas fees are, who gets paid for gas, and how they can go down in the near future.
What are gas fees?
A transaction or smart contract execution requires some amount of gas. Miners then receive compensation in Ether, which is equivalent to the total amount of gas it took them to execute a complete operation. Anything involving ERC-20 tokens (Ethereum-based tokens) requires spending small amounts of ETH for gas.
Gas is a unit of measurement for the amount of computational power required to execute certain operations on the Ethereum blockchain. Miners then receive compensation in Ether, which is equivalent to the total amount of gas it took them to execute a complete operation. This is different to a cryptocurrency such as Bitcoin because the Bitcoin blockchain is only geared to facilitate monetary transactions, with no way to add ‘conditions’ to a transaction. Smart contracts do allow for these types of conditions to be attached to a transaction.
Gas fees are essentially using a blind auction mode. The base fee is always burned, which can make ETH a deflationary asset. When the network is busy, more tokens are burned than mined. The amount of ETH in circulation can decrease if the network is busy.
Think of gas as fuel in your car and the gas station as the miner. The money you paid the gas station is the miner fees who maintain the network. Technically, gas is the fuel powering the Ethereum network. It needs to be bought and denominated into a currency, like the dollar or euro. The gas limit is the maximum amount someone is willing to pay for their instructions (or transaction) to go through and be processed.
How is gas calculated?
A simple transaction of moving ether between addresses requires 21,000 units. The gas fee for the standard speed is 40 gwei. It would take 100,000 units of gas to complete the transaction. This is a large amount of money to burn in fees. The two elements that impact the cost of any given transaction are gas price at the time of transaction and the gas required for a particular transaction.
Ethereum uses a ‘first price auction’ system to price gas. Miners pick up desirable transactions and include them in the next block. Due to a lack of transparency, there’s no way for someone to know what bids came with other pending transactions. Due to a lack of transparency, there’s no way for someone to know what bids came with other pending transactions, which can result in overpaying. Many users overpay by more than five times what was necessary.
The busier the network, the higher the prices. The faster the transaction, the more you will pay and the price difference can be quite substantial. The minimum amount needed for the simplest transaction on the Ethereum network is 21,000 units. More complex transactions such as buying other tokens or staking your tokens require a lot more gas. For example, exchanging Tether (USDT) for Chainlink (LINK), actually requires two steps: USDT > ETH and ETH > LINK.
The Ethereum mainnet block time is 15 seconds on average. And every new block contains 150 new confirmed transactions. 150,000 pending transactions are circulating in Ethereum’s global mempool. If transaction finalization was determined randomly, any given transaction would have just a 0.1% chance of being included in the next block. Transactions are prioritized by miners based on their gas fee.
When will gas fees decrease?
For gas fees to go down, we will have to wait for Ethereum 2.0 or Layer 2 scaling solutions. The second part of the fee is a tip that goes to the miner. It can be adjusted if the sender wants to process the transaction faster so in a way, it works like the sender choosing the transaction speed. Ethereum remains a PoW blockchain (for now), but the hash rate is an important metric for blockchain security. The most-anticipated change expected in Ethereum 2.0 is the consensus mechanism shift from PoW to PoS. The new blockchain protocol should address the decentralisation challenge by allowing more individual validators to participate. This should have an impact on fees, bringing them back down to a more reasonable level for the average user.
Crypto.com has a great tool for estimating the current ETH gas fees at any given time. Check out their calculator here High ETH gas fees are problematic for all users on the Ethereum network apart from the miners who receive their cut regardless. ETH has become a victim of its own success and their update, which claims to significantly reduce gas fees, will be a game-changer for them and will determine whether people continue to use Ethereum as the leading smart contract platform, or whether another platform, with much lower fees, emerges.
Ethereum’s high gas fees have been problematic for all users of the network, apart from the miners who receive their cut no matter what. The Ethereum network has become a victim of its own success and its future update promises to reduce gas fees by over 70%. If they succeed in achieving this, it will be a game-changer for the network. This will determine whether people continue to use Ethereum as the leading smart contract platform, or whether another platform with much lower fees emerges.
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