- Transaction fees on Ethereum are reaching new all-time highs.
- This makes the network much more costly to use.
- Some experts acknowledge that this means DeFi and Ethereum are not ready for mainstream adoption yet.
Transaction fees on the Ethereum blockchain are continuing to rise, making it more expensive to send transactions or use decentralized apps (dapps) on the network. And both critics and supporters of Ethereum have acknowledged the issue.
Transaction fees are measured in Gas and used to pay for operations on the network, such as transactions, smart contracts, decentralized applications and others. Most platforms running on Ethereum use it, so if gas prices rise, they become more costly to use.
The demand for computations on #Ethereum remains persistently high.
The daily gas usage is hitting ATHs and has remained over the 70 billion mark for the past month.
This is an increase of almost 2x compared to the beginning of the year.
— glassnode (@glassnode) July 23, 2020
According to Etherscan, the network used 74.033 billion Gas on July 18, an all-time high when measured in Gas (but not in dollar terms), and came pretty close to it with 74.015 billion Gas ($1.4 million) again yesterday.
“The gas fee on Ethereum is approaching its new record. This ridiculously expensive cost becomes a heavy burden to users and an obstacle of defi transactions. It's a golden window for alternative solution (sic) to overtake," tweeted Da Hongfei, co-founder of NEO—a rival blockchain platform.
The gas fee on Ethereum is approaching its new record. This ridiculously expensive cost becomes a heavy burden to users and an obstacle of defi transactions. It's a golden window for alternative solution to overtake. pic.twitter.com/TjrrZGsSYQ
— Da Hongfei (@dahongfei) July 23, 2020
But even Ethereum’s own supporters recognize there’s a problem that needs fixing.
“DeFi and Ethereum are not ready for mainstream adoption right now - if you are playing with it today you are a pioneer of a new technology. This is just the simple reality - it will get better over time - don't miss the forest for the trees,” tweeted Anthony Sassano, co-founder of Ethereum resource platform EthHub, in a conversation about gas fees.
Persistent 100 gwei standard gas prices soon™ pic.twitter.com/oNMUUB1Jyq
— Anthony Sassano | sassal.eth 👨🌾 (@sassal0x) July 20, 2020
There are limits to the transaction fees. Only a certain amount of Gas can be paid per block. However, miners can slowly raise the limits, increasing the Gas limit in each block by a small amount. Recently, they pushed up the limit from 10 million to 12.5 million, where it currently stands—giving the network an extra 25% boost.
The main cause is the US-dollar backed stablecoin Tether, which resulted in $2.4 million of transaction fees in the last month, according to EthGasStation. Other causes are decentralized exchanges, dapps, and at least one suspected Ponzi Scheme.
Ethereum is making progress towards solving the issue on the base layer (by making the network inherently more scalable) but it will take time. The final testnet for the next upgrade will launch in two weeks and take place over three months. At some point after then, it will go live.
Yet even this won’t solve the problem straight away. According to Ethereum co-founder Vitalik Buterin, the main upgrades that will make Ethereum more scalable will come a few years down the line. Earlier this month, he said that layer two technology will be needed to solve the problem in the meantime, such as a technology called zero-knowledge rollups.
But until applications start using them, and unless anything changes, Ethereum fees will keep on rising.