Why Ethereum fees are so expensive and how to reduce them

Main

• The cost of commissions for transactions in Ethereum depends on the workload of the blockchain and the complexity of the operation. Ethereum has a lot of users, but low performance – this leads to increased load and consistently high fees. Activating The Merge update did not change this situation.
• The size of the commission in Ethereum is calculated based on the gas limit for a specific operation and the cost of gas at a specific point in time.
• There are several main ways to reduce fees in Ethereum. Among them are the use of the network during periods of least load, simulation or transaction aggregation, and other options.
• A popular way to reduce transaction fees for Ethereum assets is through second-tier solutions and sidechains.

What is gas in Ethereum?

“Gas” in Ethereum is a term that refers to the amount of computing resources required to complete an operation. Transferring a token or issuing a new asset, deploying or interacting with a smart contract – all of these operations require virtual machine resources to perform. Their volume is calculated in “gas”.

The gas price is specified in Gwei, which is the designation for a small part of the Ethereum coin, equal to 0.00000001 ETH.

The amount of computing resources for a transaction is not static and depends on the workload of the Ethereum blockchain, as well as the complexity of the selected operation.

From this follows such a phenomenon as the gas limit. This is the amount of computing resources required to complete a transaction, whether it is an exchange of assets in the DeFi protocol or the transfer of USDT ERC-20 between addresses. The gas limit can be thought of as the number of liters of gasoline required to travel from point A to point B.

The transaction cost is calculated by multiplying the required gas limit by its cost in Gwei. If your transaction requires 21,000 units of gas, and the cost of a unit of gas in the market was 14 Gwei, then the transaction fee will be 0.000294 ETH.

As of October 19, 2022, to transfer USDT stablecoins to Ethereum from address to address, you will need to pay gas in the amount of $0.91, and the cost of a more complex operation, for example, to exchange assets on the Uniswap decentralized exchange, will already be about $3.11 per Gwei.

After the London hard fork on the Ethereum network, which took place in August 2021, the fee structure has changed. It included an ETH burning mechanism and a block size limit that changes depending on the blockchain load. Detailed commission calculation scheme published on the Ethereum Foundation website.

Ethereum remains the most used blockchain protocol, running hundreds of the most popular applications. At the same time, the performance of Ethereum has not changed much since its launch in 2015 and is far behind more modern projects such as Polkadot, Solana or Algorand. That is why the commissions in Ethereum are consistently high. At the same time, operations in smart contracts require increased costs.

How have fees changed on the Ethereum network since The Merge?

Since the transition of Ethereum to the Proof-of-Stake consensus algorithm, the mechanisms for determining commissions for transactions on the network have not changed. The only indirect impact on the cost of transactions in Ethereum may be the shorter time between blocks. Before the activation of The Merge, blocks were created with an interval of 14-15 seconds, after the merger, the time was reduced to 12 seconds. The Ethereum blockchain has become about 20% faster, which can, although not significantly, reduce network load.

The first update since The Merge, aimed at lowering fees by changing the settlement mechanisms at the base level of the blockchain, expected in the second half of 2023 as part of the Shanghai hard fork.

Further upgrades involve the implementation of sharding and the expansion of the use of rollups. According to Vitalik Buterin, this can increase network throughput to 100,000 per second, while reducing transaction fees on the Ethereum network.

Second level solutions

Despite the fact that the commissions in Ethereum are still high, and they are not planning to solve the problem soon, there are already ways to pay less for transfers. For Ethereum, there are a large number of second-layer protocols designed to solve the problem of high fees.

Second-level solutions for Ethereum work on the basis of the “rollup” technology (Rollups), transactions in them take place outside the main Ethereum network. They are combined into large groups and only then are confirmed at the “basic” level, that is, in the Ethereum blockchain.
Popular L2 projects include Arbitrum, Optimism, Loopring, ZKSync, Boba Network, and Aztec Network.

Sidechains in Ethereum use an independent security system and consensus algorithms, being essentially independent networks from Ethereum. Like second-level solutions, sidechains aim to increase the speed of transactions and reduce their cost for the crypto assets of the “parent” network. The most popular sidechains in Ethereum are Matic (Polygon PoS), Gnosis Chain or Loom Network.

Other Ways to Reduce Ethereum Fees

1. Choose the moment of the least network congestion. Such statistics are shown, in particular, by the service ethereumprice. According to his data, now you will have to pay the least for the transfer on Monday, in the first half of the day.
2. In some crypto wallets (for example, in MyEtherWallet and Metamask), you can manually set the amount of commission when sending a transfer. However, do not pay below the minimum recommended amount, otherwise the transfer may fail.
3. Transaction simulation. Before sending a transaction, estimate its real value using helper services like Tenderly, DeFI Saversimulating your transactions.
4. Consider using other blockchains that offer cheaper transactions and faster transfer speeds. For example, EVM-compatible networks such as BNB Chain, Matic (Polygon PoS), or Fantom have similar ecosystems to Ethereum. There are also projects independent of Ethereum, such as Solana, Cardano or Near.
5. Use dedicated apps like Balancer that can aggregate the transactions of multiple users, allowing you to lower fees for each one. Some DeFi projects offer discounts and other bonuses for transactions with assets from the Ethereum ecosystem.

Main

• The cost of commissions for transactions in Ethereum depends on the workload of the blockchain and the complexity of the operation. Ethereum has a lot of users, but low performance – this leads to increased load and consistently high fees. Activating The Merge update did not change this situation.
• The size of the commission in Ethereum is calculated based on the gas limit for a specific operation and the cost of gas at a specific point in time.
• There are several main ways to reduce fees in Ethereum. Among them are the use of the network during periods of least load, simulation or transaction aggregation, and other options.
• A popular way to reduce transaction fees for Ethereum assets is through second-tier solutions and sidechains.

What is gas in Ethereum?

“Gas” in Ethereum is a term that refers to the amount of computing resources required to complete an operation. Transferring a token or issuing a new asset, deploying or interacting with a smart contract – all of these operations require virtual machine resources to perform. Their volume is calculated in “gas”.

The gas price is specified in Gwei, which is the designation for a small part of the Ethereum coin, equal to 0.00000001 ETH.

The amount of computing resources for a transaction is not static and depends on the workload of the Ethereum blockchain, as well as the complexity of the selected operation.

From this follows such a phenomenon as the gas limit. This is the amount of computing resources required to complete a transaction, whether it is an exchange of assets in the DeFi protocol or the transfer of USDT ERC-20 between addresses. The gas limit can be thought of as the number of liters of gasoline required to travel from point A to point B.

The transaction cost is calculated by multiplying the required gas limit by its cost in Gwei. If your transaction requires 21,000 units of gas, and the cost of a unit of gas in the market was 14 Gwei, then the transaction fee will be 0.000294 ETH.

As of October 19, 2022, to transfer USDT stablecoins to Ethereum from address to address, you will need to pay gas in the amount of $0.91, and the cost of a more complex operation, for example, to exchange assets on the Uniswap decentralized exchange, will already be about $3.11 per Gwei.

After the London hard fork on the Ethereum network, which took place in August 2021, the fee structure has changed. It included an ETH burning mechanism and a block size limit that changes depending on the blockchain load. Detailed commission calculation scheme published on the Ethereum Foundation website.

Ethereum remains the most used blockchain protocol, running hundreds of the most popular applications. At the same time, the performance of Ethereum has not changed much since its launch in 2015 and is far behind more modern projects such as Polkadot, Solana or Algorand. That is why the commissions in Ethereum are consistently high. At the same time, operations in smart contracts require increased costs.

How have fees changed on the Ethereum network since The Merge?

Since the transition of Ethereum to the Proof-of-Stake consensus algorithm, the mechanisms for determining commissions for transactions on the network have not changed. The only indirect impact on the cost of transactions in Ethereum may be the shorter time between blocks. Before the activation of The Merge, blocks were created with an interval of 14-15 seconds, after the merger, the time was reduced to 12 seconds. The Ethereum blockchain has become about 20% faster, which can, although not significantly, reduce network load.

The first update since The Merge, aimed at lowering fees by changing the settlement mechanisms at the base level of the blockchain, expected in the second half of 2023 as part of the Shanghai hard fork.

Further upgrades involve the implementation of sharding and the expansion of the use of rollups. According to Vitalik Buterin, this can increase network throughput to 100,000 per second, while reducing transaction fees on the Ethereum network.

Second level solutions

Despite the fact that the commissions in Ethereum are still high, and they are not planning to solve the problem soon, there are already ways to pay less for transfers. For Ethereum, there are a large number of second-layer protocols designed to solve the problem of high fees.

Second-level solutions for Ethereum work on the basis of the “rollup” technology (Rollups), transactions in them take place outside the main Ethereum network. They are combined into large groups and only then are confirmed at the “basic” level, that is, in the Ethereum blockchain.
Popular L2 projects include Arbitrum, Optimism, Loopring, ZKSync, Boba Network, and Aztec Network.

Sidechains in Ethereum use an independent security system and consensus algorithms, being essentially independent networks from Ethereum. Like second-level solutions, sidechains aim to increase the speed of transactions and reduce their cost for the crypto assets of the “parent” network. The most popular sidechains in Ethereum are Matic (Polygon PoS), Gnosis Chain or Loom Network.

Other Ways to Reduce Ethereum Fees

1. Choose the moment of the least network congestion. Such statistics are shown, in particular, by the service ethereumprice. According to his data, now you will have to pay the least for the transfer on Monday, in the first half of the day.
2. In some crypto wallets (for example, in MyEtherWallet and Metamask), you can manually set the amount of commission when sending a transfer. However, do not pay below the minimum recommended amount, otherwise the transfer may fail.
3. Transaction simulation. Before sending a transaction, estimate its real value using helper services like Tenderly, DeFI Saversimulating your transactions.
4. Consider using other blockchains that offer cheaper transactions and faster transfer speeds. For example, EVM-compatible networks such as BNB Chain, Matic (Polygon PoS), or Fantom have similar ecosystems to Ethereum. There are also projects independent of Ethereum, such as Solana, Cardano or Near.
5. Use dedicated apps like Balancer that can aggregate the transactions of multiple users, allowing you to lower fees for each one. Some DeFi projects offer discounts and other bonuses for transactions with assets from the Ethereum ecosystem.