Why are Eth gas fees so high thus far in 2021?
What are eth gas fees?
If you are new to cryptocurrency you may be wondering what Eth gas fees are. Most people first come across gas fees when they go to send their Ethereum somewhere or perform a “swap” for one Eth token to another. Much like the gasoline that powers your car, Eth gas is the “fuel” that allows the Ethereum network to operate. In essence, you are paying miners for their computation to process your transaction; you can think of it as gasoline needed to take your from point A to point B or more of a toll that allows you to access the “roads” to get from point A to point B.
mfw making an Ethereum transaction and then I see the gas fee pic.twitter.com/kOpoams2jH
— Tweetophon ⚛️ (@Tweetophon) February 25, 2021
Recently it has cost upwards or $50 usd in Eth to send tokens on the Ethereum network. This has made it nearly impossible for retail investors to use this technology. High Eth gas fees hurts retail investors more than “whales” simply since gas fees are not calculated based on the size of the transaction – this means if you are trying to buy $50 Eth (or ERC20) token, it could cost you 100% of your order to complete the transaction. That would be the equivalent of spending $50 to buy $50 worth of Amazon stock – a no go.
Whales however, deal in sometimes millions of dollars worth of trades and for them, paying $50 on a 5 million dollar transaction is a rounding error.
Why is the gas so damn high?
There has been an explosion in the last year in decentralized exchanges, usually referred to as “Swaps”, with the most prominent being Uniswap. Uniswap and others allow you to swap one asset for another, without having to use a decentralized exchange like Coinbase or Binance. No user names, no setup and generally, no regulation. Not only is it easier in some regards to use swaps, the lack of regulation means there are thousands of assets (many scams) that you one can acquire rather easily. While this runs the danger of rug pulls, the prospect of any user being able to “get in early” on potential moonshots, before they are listed on main exchanges has driven the volume of these swaps to massive levels.
disclaimer: please use decentralized exchanges like uniswap at your own risk. They are extremely risk and you will lose your coins if you are not careful.
Increased volume from these decentralized exchanges, plus the recent explosion in price in Ethereum (currently price has fallen back), has put pressure on the Ethereum network. In layman’s terms their are more cars on the roads then the infrastructure is used to. These increased gas fees have (in most people’s opinions) have caused the price of Ethereum to drop.
What can be done about gas fees?
Like most thinks in free market, a problem generally leads to a solution if it is lucrative. There are currently projects looking to scale Ethereum – we won’t list any specifically right now until we’ve done enough research to refer our readers, but in essence there are some creative ways to being worked on to reduce Eth gas fees on and off chain.
In reality, what most investors are waiting for is Eth 2.0 – which is tentatively scheduled for late 2022 into 2023. Eth 2.0 should increased ETH’s core to 64x+ faster. This will move transactions thru the chain quicker and clear up backlog thus lower fees by design.
.@VitalikButerin bro we need ETH 2.0 ASAP
— ChadTraders (@ChadTraders) February 23, 2021
In closing, if you can’t wait for scalable solutions, you need to decide if the asset you are worth acquiring is worth the fees. In reality this may help investors become more choosy, do more research and only pull the trigger on projects they feel are worth the loss in fees. A small positive amongst the muck.