A year of nightmares for fees on Ethereum

A year of nightmares for fees on Ethereum

Key facts:
  • In May 2021, average commissions per day reached almost $ 70.

  • Many hoped that EIP-1559 would fix the problem, but this did not.

In addition to continuing the DeFi-mania that began in 2020, the year that is about to end also saw new trends in the Ethereum ecosystem. Among them, the increase in business around non-fungible tokens (NFT), video games to earn cryptocurrencies (play-to-earn) and a new memecoin.

Along with the large flow of new users brought in by these products, network congestion intensified and, as a consequence, the price of the fees necessary to operate reached record levels.

The average fees in Ethereum (measured in dollars) started the year at USD 3 and ends at USD 27, as can be seen in the explorer BitInfoCharts. The record, both annual and historical, was reached on May 12, 2021 when a daily average of almost $ 70 was reached.

In March we began to see glimpses of what would be the NFT-mania. That month, google searches of the term “NFT” skyrocketed globally. They began a mostly upward trend that continues to this day.

A couple of months later, the game Axie Infinity was, little by little, becoming massively known. Testimonials from different parts of the world of people who earned tokens for playing this video game circulated on the network and encouraged new people to try it. The Ethereum ecosystem was filling up with gamers for profit.

Also, in May, a new dog made its barking heard in the cryptocurrency neighborhood: the shiba inu memecoin (SHIB). Despite sharing race, it differs from the classic dogecoin (DOGE). It is that shiba does not have its own blockchain but it is an Ethereum token.

Unfortunately for all Ethereum users, the FOMO (fear of being left out) unleashed when the price of shiba inu began to rise also raised the commissions of the network.

A year of nightmares for fees on Ethereum
The high commissions in Ethereum make the user experience not pleasant. Source: BitInfoCharts / bitinfocharts.com

EIP-1559: frustrated hope for the Ethereum community

Many ethereans they put their hope in the EIP-1559 improvement proposal. This implementation, which has been worked on for several years, changes the rate system in Ethereum: Each transaction pays a base fee that is burned and a tip that goes to the miners.

Although it was not the main objective of this improvement proposal to reduce rates (this is considered as a secondary consequence in the long term), many understood and disseminated it.

Great was the disappointment of those who hoped to operate their favorite decentralized applications (dApps) at cheap rates after the approval of EIP-1559.

The proposal was activated in block 12,965,000 on August 5, and no significant change has been observed since then in terms of amounts paid for operating on the network created by Vitalik Buterin.

A year of nightmares for fees on Ethereum
EIP-1559 did not meet the goal, expected by many, of lowering
fees in Ethereum. Fountain: @Yazanator / twitter.com

Other blockchains take advantage of the bad moment of Ethereum to grow

Faced with the aforementioned situation, many users of various dApps set their eyes on other blockchains. Although they do not stand out for their decentralization, Binance Smart Chain and Solana, for example, took a large part of the market decentralized finance, non-fungible tokens and games to win cryptocurrencies.

Too the growth of Polygon (previously called Matic) was exponential in 2021. Unlike the networks mentioned in the previous paragraph, the latter presents an Ethereum-friendly narrative. It is presented as a side chain that seeks to decongest the main network. It is even often mistaken for a second coat solution.

This has caused many platforms initially designed to work only on Ethereum to also expand towards Polygon. These include the decentralized lottery PoolTogether, the 1inch exchange, and the non-fungible token marketplace, OpenSea.

A year of nightmares for fees on Ethereum
The fees on Polygon are considerably cheaper than on Ethereum. Fountain: Polygon.

Rollups, the new hope for Ethereum

Now, the new hope of the ethereans to have a scalable, fast and cheap network is in the second layer solutions, more precisely, in the rollups.

It has already been generally assumed that even with Ethereum 2.0 (the new version of the network that will use proof of stake, PoS), fees will remain high, at least in the initial stages.

The new roadmaps for Ethereum are rollup-centric and the creator of the network cannot imagine a future without these scalability solutions.

The rollups “wrap” transactions and allow them to be executed outside of the mainnet (or mainnet). These transactions can be ether (ETH) shipments, tokens, or smart contract signatures.

Two things are expected with the increased use of rollups. On the one hand, improve the usability of the Ethereum ecosystem, by allowing fast and cheap transactions, although more centralized, in rollups. On the other hand, it is expected that the main network will decongest and even in that base layer – which will be necessary to guarantee decentralization – the user experience should be more satisfactory.

See also  Polygon boosts Ethereum scalability with Miden, an innovative STARK-based zk-rollup - DiarioBitcoin

Leave a Comment

Your email address will not be published. Required fields are marked *