What are gas fees?

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The "gas rates" are the transaction fees that users pay to miners in a protocol of block chain for your transaction to be included in the block. The system works with a standard supply and demand mechanism. If there is more demand for transactions, miners may choose to include the highest paying transactions, forcing users to pay more so that their transactions are processed quickly and efficiently. Users of Ethereum They can also choose to pay more for faster transactions, as seen in the chart below.

Wallets like MetaMask allow users to interact directly with the Ethereum network, choosing the amount of gas they want to pay for. There are several websites where you can keep track of gas prices, such as ethgastation.info or ethereumprice.org.

gwei

Why are gas prices so expensive?

Gas fees can be high because Ethereum is one of the most widely used blockchains – there is so much movement on the Ethereum chain that the blocks are full and transaction fees skyrocket with every increase in demand.

Gas rates are not always astronomical, but they have skyrocketed to incredibly high levels during peak periods in the past, such as the ICO boom of 2017 and the summer of DeFi 2020, both times when the value of Ethereum and the number of projects in the space skyrocketed, bringing congestion to the Ethereum network.

In many cases, gas rates can be outrageous for most use cases. However, rising gas rates show that there are real use cases for Ethereum and decentralized applications (DApps) are built on it.

If we can scale Ethereum, making it process more transactions and at a lower cost, new business models will emerge. One of the most successful use cases of a blockchain network so far is the decentralized finance (DeFi) ecosystem mentioned above.

DeFi Summer

During the first half of 2020, several new projects in the decentralized financial space rapidly increased in popularity and made many people very rich, very quickly, leading to an increase in their use that we now call the “DeFi Summer”.

Lending, borrowing, flash loans, derivatives, Yield Farming and decentralized insurance became popular very quickly. DeFi was a booming ecosystem, and it also had its share of various stunts, carpet pulls, and other dramas.

In this Gitcoin chart, you can see the evolution of gas prices over the last 35 weeks, from July 2020 to February 2021.

gashistory

Smart contracts have high demand peaks. As the network gets busier, so does the price of its native asset (which is ETH in the case of Ethereum).

Higher value of Ethereum

An increase in usage, which tends to come with ETH appreciation, means an increase in gas rates for the entire network.

Ethereum's dominance as a base layer (Layer 1) for Web3 is challenged by a number of protocols, such as Binance Smart Chain, Avalanche or Cardano , to name a few. The main characteristic of many of these projects is to offer lower gas rates and, in some cases, a higher volume of transactions per second (TPS).

The lower gas rates offered by these other blockchains come with their own problems. Gas prices are generally lower due to the reduced volume of traffic on those blockchains and significantly fewer DApps operating on them, at least compared to Ethereum.

avgethgasprice

It is inevitable that some DApps are being discounted from the main Ethereum chain. These DApps often do not need composability with other Ethereum DApps and will be moving to sidechains, alternate chains, or Layer 2 solutions. As scalability issues and high fees continue to hold back Ethereum, we are seeing an increase in bridges. to move assets from one chain to another.

Layer 2 solutions are being developed to scale Ethereum and make it more competitive in the short term, as the network transitions to Ethereum 2.0. Meanwhile, rollup packages are one of the most promising solutions and will likely be the catalyst for the widespread adoption of digital payment networks globally.

How can we create a more sustainable Ethereum with lower gas fees?

Many different technical approaches are being developed in parallel to scale Ethereum's capacity, increase performance, and lower gas fees. Of these, cumulative packages are starting to show itself as a promising solution.

By using Ethereum as a base layer and inheriting its security and decentralization, rollup packages allow users to transact without congesting the Ethereum network. We call Ethereum "Layer 1", while a brief is built "on top of it" as Layer 2, expanding its original capabilities.

There are two main cumulative groups: cumulative optimistic and cumulative without knowledge. Each of them has advantages and disadvantages, and different use cases will be better suited to one type or another.

For example, in the Hermez ZK rollup, they are leveraging zero-knowledge technology to heavily compress transaction data. In this way, thousands of transactions can be grouped together and the cost of gas reduced, which makes the user pay much less (-98%) per transaction.

hermezethereum

Developing and integrating different cumulative solutions could foster a commonwealth climate, rather than predatory competition. In any case, the entire Ethereum ecosystem will benefit from these technological innovations.

Conclution

The roadmap to Ethereum 2.0 is long and complex, but now we can scale Ethereum thanks to the development of stacks and the increasing availability of reliable data. Ethereum founder Vitalik Buterin recently posted his thoughts on the power of ZK summaries on the scalability issue facing Ethereum:

“In general, my own opinion is that in the short term, optimistic rollups are likely to win for general purpose EVM calculation and ZK rollups are likely to win for simple payments, exchange, and other specific use cases of the application, but in the future ZK's cumulative packages in the medium and long term will win in all use cases as the ZK-SNARK technology improves ”.

In the same way that roll-ups can scale Ethereum 1.0, they will also scale Ethereum 2.0, potentially making it capable of outperforming traditional payment networks like PayPal or Visa in transactions per second.

At the time of writing, it is difficult to trade or transfer tokens on UniSwap due to gas prices. Expensive network fees and low volume of processing transactions are blocking the way to widespread adoption of the digital currency. In the coming years, this will change completely, and soon we will be able to transfer value between all of us economically and efficiently.



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