- Ethereum transaction fees are running red hot as people pile onto the network for NFTs and DeFi.
- Yet the high costs are infuriating users and sending many towards other blockchains such as solana.
- Developers are scrambling to fix the problem, which could threaten ethereum’s top-dog status.
Transaction fees on the ethereum blockchain are running red hot as NFT-mania clogs up the network.
It’s a problem that’s infuriating people and sending many looking elsewhere, to cheaper blockchains such as solana and avalanche.
Some even think it could be an existential threat to a cryptocurrency network that bills itself as the future of finance.
But the network is also at the centre of the modern crypto ecosystem. It’s the foundation on which non-fungible tokens (types of crypto collectibles) and decentralized finance are built. Both NFTs and DeFi are now huge industries.
Ethereum is running on surge pricing
On ethereum, people pay a “base fee” to have their transactions verified by other users known as “miners.”
Yet those fees have rocketed as interest in NFTs has soared, and more people try their hand at DeFi.
Imagine ethereum as a bit like a ride-hailing app that is struggling to add new drivers, in a city that’s just seen a huge influx of people. Now, for each ride (or transaction), people have to pay a huge surge price to get drivers to pick them up.
The average transaction or “gas” fee on the ethereum network rose to as high as $US63 ($AU88) in November. That was its second-highest level ever, behind May’s record high of $US70 ($AU98), according to crypto exchange Kraken’s analysts.
People are regularly paying more than $US100 ($AU140) just to deposit, say, $US50 ($AU70) worth of cryptocurrency on DeFi platforms – and that’s making many extremely angry.
“Gas fees are insane,” said one user on the ethereum Reddit page. Another said: “If the ethereum network can’t fix its gas fees, it won’t be used by the average consumer.”
Some are looking to solana
Not all crypto fans are upset. Networks such as solana, avalanche, and cardano are positioning themselves to profit.
Solana’s transaction fees are minuscule, just a fraction of a penny. The network is also much faster, handling many thousands of transactions per second, compared with double-digit figures for ethereum.
Solana’s native token sol has risen more than 400% over the past 180 days, according to Coingecko. Avalanche is up more than 500% over the same period, while ethereum has gained around 80%.
“Some of those headwinds for ethereum I think have caused people to ask themselves, ‘What else do I want to own at this point?'” Pete Humiston, head of research at Kraken, told Insider.
Developers are working on it
So why can’t ethereum simply expand the network?
Ben Edgington, a developer at ethereum-focused company ConsenSys, said it’s a philosophical point.
Increasing the capacity of a decentralized crypto network would mean forcing users to deal with ever-increasing data and to upgrade their hardware, he told Insider.
“If we crank up transaction throughput, that will exclude those with more modest resources from participating,” Edgington said. It would then no longer be very decentralized.
Developers are scrambling to work out other solutions, such as expanding a second ethereum layer. That would effectively enable many activities to happen away from the core network, which would remain accessible.
It’s far too soon to say high gas fees are a crisis for ethereum, according to Jack O’Holleran, CEO at ethereum development company Skale Labs. In fact, he said, they’re a symptom of the network’s huge success.
“There’s so much momentum from a developer perspective around ethereum,” he told Insider. “The best quality teams and projects and platforms are all building on ethereum. It’s the system that connects into everything.”