Each day, over a million transactions happen on Ethereum network. This shows Ethereum has worth beyond thinking of its price.
Ethereum is cryptocurrency’s main place for on-chain activity. Due to its high traffic volume, it frequently causes congestion on the network and high transaction costs. While more activity is good, many users find the chain difficult financially as a result of the cost rise.
After the Merge, many Ethereum users had high expectations for a decrease in gas fees. Still, current events show that significant transaction costs continue to be a major worry.
Let’s examine the Ethereum gas fee landscape and the recently launched dApp Smol Refuel.
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Has Exorbitant ETH Gas Fees Become A Norm?
Ethereum’s transaction volume has increased since the beginning of February, and this matches with the network gas fees hitting a multi-month high. With peak gas prices reaching as high as 377 gwei, not seen since May 12, 2023, Ethereum’s network gas prices peaked on February 9 at an average of 70 gwei ($60 for a typical transaction).
There are a number of possible causes for the recent increase in gas prices. NFT trading on Ethereum reached its greatest points since late February of last year during the course of the last week. Furthermore, it was in line with the crypto industry’s growing focus on the ERC-404 token standard. In order to enable fractionalized NFTs, where many wallets can each own a portion of a single NFT, ERC-404 seeks to connect ERC-721NFTs with ERC-20 tokens. This will make it easier to trade or stake for loans.
Exorbitant fees continue to be a worry, stressing users because of the large sums they must pay, even though there was anticipation that gas fees would decrease after the merger.
Why A Network Charge Transaction Fee?
Nearly all blockchains have transaction fees as a basic component that are necessary to complete every transaction inside their network. Blockchains differ in these fees; Ethereum is known for its strong security but is also associated with expensive gas prices.
The costs incurred for handling transactions or carrying out contracts on the Ethereum blockchain are sometimes referred to as Ethereum gas fees. The complexity of the transaction and the kind of network congestion usually determine these fees. Miners are encouraged to include transactions in a block by the fees that users pay in ETH.
Gas prices and limits impact gas fees. Gas prices in gwei ( 1 gwei= 0.000000001 ETH) are the costs users pay per gas unit. Gas limits at highest express what users will spend on transactions. The gas limit shows the max amount of gas units that users want to pay for a transaction. Next, the gas price, which is made up of the base and priority fees, and gas limit are multiplied by the blockchain to determine the overall gas fee.
The planned usage of the platform and supply-demand dynamics can affect gas prices. The average gas price in the 2017–2018 bull market was between $5 and $6. From that point on, fees have gradually grown, with rising Ethereum prices and network congestion being the main causes.
What Is Network Congestion?
When several users attempt to finish transactions at once, network congestion occurs, much like traffic jams on a crowded road. This problem becomes worse by the fact that users might pay more for gas in order to increase the possibility that validators will confirm their transactions.
As a result, this sets off bidding wars, in which users compete to provide the most gas for the purpose of enabling smart contracts or transfers. The gas payments necessary for a transaction to be prioritized by validators and prevent failure also rise together with demand.
The effects of network congestion are made worse by these bidding wars. While there isn’t a quick fix to lessen these impacts, the result is unavoidable: users who don’t have enough money to support transactions on the Ethereum network that are profitable for them will eventually stop using it.
Based on the Pareto principle, it can be determined from this that most network users stop from completing transactions while congestion is at its worst, which causes gas prices to fall after an increase frequently occurs. This system’s built-in economic incentives usually lead to short periods of network traffic.
But precise predictions regarding the price ceiling on gas prices during congestion rises are impossible due to the unpredictable actions of investors in financial markets.
If millions of new investors rush to Ethereum, the price of gas will continue to rise, which shows how important it is to build long-term scaling solutions.
Scalability Solutions or Scaling Ethereum?
Many people initially praised Ethereum as the transactional technology of the future, but as we pointed out, recent difficulties have forced people to turn to layer 2 options like Polygon and Arbitrum. These substitutes maintain similar security standards but offer far lower fees than the Ethereum main chain.
Since 2021, L2 technology has advanced remarkably, helped largely by Ethereum’s switch to a proof-of-stake mechanism and resulting significant cost reductions on these side chains. Still, using an L2 chain still has disadvantages as it is frequently difficult and complicated, especially for non-technical users.
For Ethereum to survive, the high gas charge issue must be resolved; if not there exists the danger of more users switching to Layer 1 options that are more effective.
Is Ethereum Working On A Solution?
Ethereum has used a Proof of Work (PoW) agreement process to verify transactions and incorporate them into the network since its founding. The Ethereum network had a major change in September 2022. This was called “The Merge” where the Beacon and mainnet chains united. Ethereum shifted its consensus method, where it shifted and changed from Proof of Work to Proof of Stake.
The Merge didn’t lower Ethereum gas fees as expected. Though many expected lower rates, its effect has been minimal so far.
However, sharding, which is a technique that involves creating numerous side chains to lessen the load on the mainnet, was made possible thanks to Ethereum’s shift to proof-of-stake. Shading promises to significantly decrease network congestion while enhancing scalability.
The network should be able to handle transactions with ease even in situations where there are a lot of them.
Unfortunately, Ethereum continues to struggle with scalability issues in spite of recent developments like The Merge and the Shanghai upgrade.
Though scalability, security and efficiency are among Ethereum’s ongoing problems, the Dencum update, which is scheduled for the first quarter of 2024, shows great potential. Nine Ethereum Improvement Proposals (EIPs) will be introduced with this upgrade, the most notable of which is EIP-4844, which intends to reduce gas fees by introducing new transactions that carry “blobs.” Because of their bigger sizes, these blob-carrying transactions should be less expensive, providing relief from expensive gas expenses.
Although the implementation of these modifications is highly expected, it is unclear how well they will address the network’s weaknesses.
Smol Refuel
Users now have to pay these outrageous gas prices. However, what happens if someone wants to sell ERC-20 tokens but has no ETH?
To solve this problem, 0xngmi from DefiLlama developed a dApp called SmolRefuel. This platform makes swaps easier without requiring initial Ethereum.
So just what is a permit, exactly?
By attaching an authorization signature, the Permit, introduced in the ERC20 protocol through EIP-2612, allows users to engage with smart contracts without previous authorization.
It is standard procedure for account A to use the approve function in ERC20 token transactions to give account B permission to handle particular tokens that A owns.
The permit function, however, functions in a unique way. Account B can use it to carry out the permit function and carry out allowed operations on behalf of A. It also gives account A the ability to create an off-chain permission signature for the selected recipient. Interestingly, any account can use the permit function, regardless of ownership.
In any case, Smol Refuel supports over 81 chains, including well-known L1 chains like BNB Chain, Harmony and others. It is compatible with the majority of ERC20 tokens that support Permit. User permissions are essentially signed while using the platform, and once submitted, a bot can start transactions, carry out swaps and send ETH to the user.
With no remaining authorization, the platform’s smart contract guarantees that the permit approval is fully expended. Furthermore, in the event that a transaction fails or reverts, the signature expires after one hour. Additionally, the platform limits swaps to prices under $1,000 in order to increase security.
Users should utilize the platform with the utmost caution as it is currently under development.
Wrap-Up Zero Gas Ethereum Coin Swapping
On Ethereum, gas fees are necessary to maintain the platform’s functionality. Fees for complex transactions are generally greater than those for simpler transactions. Sometimes, though, the fees may not be suitable for the value of the transaction.
Ethereum should focus on finding answers to the problems of high gas fees and scalability rather than relying just on different L2 solutions.
In the meantime, advanced solutions like Smol Refuel aim to strengthen the ETH Gas infrastructure and create chances for ecosystem improvement.
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