Will the Ethereum update fix the transaction fee issue?

The new report from analytics provider Coin Metrics discussed Ethereum transaction fees. According to the report stating that transaction fees are still very high, the highly anticipated network update will not solve this problem.

According to Coin Metrics’ Ethereum Gas Report, the average transaction fee for the Ethereum network was over $ 10 for the majority of 2021. At the peaks of the 2017/2018 bull market, the average trading fee was just $ 5.70.

The report, which partially attributes the increase in transaction fees to the increase in the price of ETH, suggested that this would cause a vicious circle, further increasing gas fees. Ether has gained 125 percent since the beginning of 2021, despite a 19 percent correction after reaching $ 2,050. In the same period, the average gas fee increased by 532 percent.

The amount of gas required by different transaction types is also different. A simple ERC-20 token transfer consumes far less gas compared to the smart contract activities of automated market makers. However, the report noted that higher transaction fees were driven by more transactions overall, not DeFi.

“Since January 2020, the amount of gas used per transaction has decreased. This shows that increased transaction complexity is not responsible for the high transaction fees. “

In the current situation, miners give priority to those who pay high gas and their transactions are performed faster.

According to the report, the transaction fees are due to the blocks being consistently filled around 95 percent since mid-2020. Ethereum blocks were 97-98 percent full in March 2021, according to the study.

Ethereum block occupancy. Source: CoinMetrics

Since each block can contain a limited number of transactions (160-200 on average), miners have to choose between the transactions to include when creating the new block.

“Naturally, miners also prioritize high gas-paying transactions that will earn more.”

The EIP-1559 network update, designed to change this selection process and burn some of the transaction fees, will also be insufficient to fix the problem, according to the report. Coin Metrics believes that only scaling solutions will provide a long-term solution.

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