In a report addressing one of the most talked about topics in the community, namely the high fees on the Ethereum network, CoinMetrics shows that the cost is now roughly double what it was in 2017/2018.
However, the paper warned that the upcoming EIP-1559 upgrade may not solve the problems.
Ethereum Fees: Then and Now
The Ethereum blockchain is arguably the most widespread network in the field of cryptocurrency. Having the underlying technology of the two hottest trends – DeFi and NFTs – while having numerous stable coins at the same time has caused several issues, mostly with scalability.
This resulted in significant delays in settlement and, as mentioned above, in unusually high transaction fees. CryptoPotato reported some extreme cases ago when the average cost hit new highs of over $ 30.
In its most recent report on ETH fees, CoinMetrics examined the differences between the current bull cycle and the previous one in late 2017 and early 2018. Back then, the Ethereum network was also very busy, especially during the ICO madness.
However, the document shows that the average transaction fee three years ago was $ 5.70. The situation is very different now as the average cost has been higher than this amount every day since January 18, 2021. Additionally, the newspaper said the median transaction fee has now been above $ 10 for most of the year.
Ethereum Mean & Median Fee 2017 vs. 2021.Source: CoinMetrics
Although the CoinMetrics paper admitted that ETH’s price hike also affected higher transaction fees to some extent, it does say that congestion on the network is the more pressing matter.
At the time of this writing, the Ethereum mempool states that there are over 150,000 transactions pending. In some cases, that number has historically exceeded 180,000.
EIP-1559 may not help
To address the problem of high gas fees, the developers of Ethereum are currently working on the possible introduction of ETH 2.0. It will mean the transition from the algorithm for the proof of the working consensus to the proof of the commitment. However, this upgrade may be years away from full deployment, which is why the developers have planned several PoW updates.
The next to see the light of day is the London Fork, which is expected to be operational in July 2021. Despite some controversy among miners, it will include the Ethereum Improvement Proposal (EIP) 1559, which aims to help lower transaction fees.
EIP-1559 will change the gas mechanism of ETH by implementing an algorithmically calculated basic fee instead of the current user-defined gas price.
There will be a new block target size mechanism that will prevent the blocks from reaching their maximum capacity often. The maximum block size is doubled to 25M gas, but the target block size remains at 12.5M gas. In addition, some of the basic fees are burned, whereby they are permanently removed from the offer and thus the entire ETH offer is reduced.
However, the report states that while the improvements outlined above should theoretically lower average fees, in reality “probably” not.
“High transaction fees are fundamentally a scalability problem. If Ethereum can only process a few hundred transactions (on average) per block, the fees will continue to be high as long as the use of dapp continues to grow. Gas prices will continue to be high as long as there is strong competition for block space. “
Instead, CoinMetrics determined that the adequate solution would come from Layer 2 scaling networks until the arrival of ETH 2.0. Several blockchain projects have announced plans to introduce such solutions, including Polygon (formerly known as MATIC) and Cartesi.
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