September 30, 2022

EIP-1559 Might Not Lower the High Ethereum Transaction Fees: Report

3 min read

In a report exploring one of the most talked about topics within the community, namely the high fees on the Ethereum network, CoinMetrics suggests that the costs now are roughly two-times higher than during the 2017/2018 run.

However, the paper alerted that the upcoming EIP-1559 upgrade may not solve the issues.

Ethereum Fees: Then and Now

The Ethereum blockchain is probably the most widely-utilized network in the cryptocurrency space. Nevertheless, being the underlying technology of the two hottest trends– DeFi and NFTs– while also having various stablecoins running on top of it has actually triggered numerous problems, mainly with scalability.

This led to substantial hold-ups when transacting and, as mentioned above, abnormally high transaction charges. CryptoPotato reported prior to some severe cases when the typical costs went to new highs of over $30.

In its most current report on ETH costs, CoinMetrics took a look at the distinctions in between the continuous bull cycle and the previous one in late 2017 and early 2018. Back then, the Ethereum network was also highly-employed, especially during the ICO craze.

Nonetheless, the file reveals that the average deal charge three years earlier was $5.70. The situation now is rather different, as the average expenses have been greater than that quantity every day since January 18th, 2021. In addition, the paper checks out that the median transaction cost now has been above $10 for most of the year.

Ethereum Mean & Median Fee 2017 vs. 2021. Source: CoinMetrics
Ethereum Mean & Median Fee 2017 vs. 2021. Source: CoinMetrics Although the CoinMetrics paper confessed that ETH’s rate increase has likewise impacted the greater deal costs to some extent, it checks out that the network congestion is the more pressing matter.

As of writing these lines, the Ethereum mempool says that there are over 150,000 pending transactions. On some celebrations, that number went beyond 180,000 in the past.

EIP-1559 May Not Help

To address the high gas charges problem, the Ethereum designers are presently dealing with the ultimate launch of ETH 2.0. It will signify the shift from the proof of work agreement algorithm to evidence of stake. Nevertheless, that upgrade might be years far from complete deployment, which is why the designers have planned several PoW updates.

The next one to see the light of day is the London Fork, scheduled to be operational in July 2021. Despite some debate amongst miners, it will include Ethereum Improvement Proposal (EIP) 1559, which need to help decrease the transaction charges.

EIP-1559 will alter ETH’s gas mechanism by carrying out an algorithmically computed base cost rather of the current user-specified gas rate.

There will be a new block target size mechanism that will keep the blocks from often reaching their maximum capability. The maximum block size will be doubled to 25M gas, however the target block size will remain at 12.5 M gas. Furthermore, some of the base fees will be burned, which will completely remove them from supply– thus, decreasing the overall ETH supply.

Nevertheless, the report stated that while the aforementioned enhancements must reduce the average fees in theory, in truth, they “most likely” will not.

“High deal fees are basically a scalability issue. If Ethereum can just process a few hundred transactions (typically) per block, there’s going to continue to be high costs as long as dapp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block area.”

Rather, CoinMetrics noted that the adequate option, until ETH 2.0 gets here, would originate from Layer-2 scaling networks. A number of blockchain jobs have announced strategies to launch such services, consisting of Polygon (previously known as MATIC) and Cartesi.