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Due to the rise in the price of Ethereum: transaction costs are skyrocketing

Posted on 6. January 2021 in Bitcoin

The demand for Ethereum is currently high. This has led to significant increases in transaction fees. The increase since the beginning of the year is almost 400%.

The Crypto Code review website contains a large number of charts on which the increase in fees (in “gas”) can be clearly seen.

What is “gas” in Ethereum?

The fees for Ethereum (ETH) are calculated in “gas”. Gas as a unit reflects how much computational effort is required to execute a transaction on the Ethereum blockchain. There is a certain gas fee for every transaction and every smart contract. The broadcaster can freely choose this fee. The gas serves as an incentive for the miners who generate the hashrate and thus make the Ethereum blockchain fast and secure. The higher the gas offered, the sooner the miners will process the transaction.

In general and simplified, you can think of gas as a fuel. If you step on the “gas” pedal on your car, drive faster and you will be there sooner. If you save fuel (gas), progress will be slower.

At the same time, the amount of “gas” required increases when the Ethereum network is heavily loaded.

Where does the high utilization of the Ethereum network currently come from?

Ethereum is not only a cryptocurrency, but also a platform for smart contracts and other cryptocurrencies. These build on the advanced basic system of Ethereum and can thus concentrate more effectively on their actual benefits.

“DeFi” apps are currently on the rise. “DeFi” is an abbreviation for “decentralized finance”. The DeFi area is currently growing rapidly and is seen by many as the future of the financial sector. The main difference to conventional finance (e.g. banks) is the decentralization. This offers many advantages and can avoid many of the current problems facing the banking industry. One example of this are so-called open credit platforms, on which borrowers can take out loans quickly and easily, for which the lenders receive interest. This is of course just a single example. The possibilities are tremendously diverse and in the course of time many new, still unknown, models will probably emerge.

Are Ethereum transactions too expensive?

In the social networks , doubts were promptly aroused as to whether Ethereum was suitable for the mass market with the high transaction costs. These doubts are justified, but the Ethereum team is currently working on solutions. These are expected to be introduced soon and relieve the Ethereum blockchain. That should then also lower the “gas” prices.