A look at the many ways platforms and users are addressing the high expenses, as well as why gas prices might be so high.
What are transaction fees?
On a blockchain network, users must pay transaction fees in order to send a transaction or engage with a smart contract. Although the word “gas fees” can apply to transaction costs on any blockchain, it is most frequently used to refer to the transaction fees for the Ethereum network.
Small portions of the native coin of the network are used to pay transaction fees. For instance, users of Bitcoin (BTC) and Ether (ETH) will pay in gwei and Satoshis, respectively (extremely tiny fractions of BTC).
Users are required to pay fees while sending a transaction for two major reasons. Paying miners or validators—also referred to as nodes—for safeguarding the network is the primary justification. Blockchains that use proof-of-work (PoW) have miners who use their computing power to solve difficult algorithms to validate transactions. In contrast, validators on proof-of-stake (PoS) blockchains stake their tokens to protect the network.
These nodes get transaction fees on the blockchain in exchange for protecting the network and preventing the placement of fraudulent transactions. By eliminating the need for centralized bodies to guarantee that no malicious activity occurs on the network, network validators enable the blockchain to run decentralized.
Users pay transaction fees for smart contracts to be operational, which is the second reason. Programs known as smart contracts run automatically when specific criteria are satisfied. For instance, a smart contract may be set up to release tokens or a nonfungible token (NFT) when they have been paid or after a predetermined period of time. Since smart contracts also send out transactions, they are subject to the same costs as users. Thus, a user must pay the gas fees in order to execute a certain function on a smart contract.
Why can transaction fees get very expensive?
Transaction costs change over time and depend on a variety of factors. Speed is one of these factors, and nodes prioritise transactions with larger fees to shorten the time it takes for them to arrive. On the other side, because nodes do not give priority to them, transactions with smaller fees validate more slowly.
Most widely used systems, such wallets and exchanges, set the transaction cost at a medium level. Users may, however, modify the cost, raising it for urgent transactions and lowering it to save money while waiting longer for the transaction to finish.
The main causes of high transaction fees are supply and demand. When a blockchain network experiences heavy transaction demand, prices inevitably increase since the supply can no longer keep up. As a result, nodes prioritise transactions with greater costs, users raise their transaction prices, and the standard is raised. Consider a scenario where the average transaction charge is $3.00 and the network is busy. Therefore, a lot of people begin putting their transaction cost at $10. Examples of causes include a well-liked ICO or NFT offering that many people are attempting to participate in.
Even the $10 transactions take too long to process due to the increasing demand. Therefore, customers start out paying $15 for petrol, then $25, $50, and so on. The need for transactions has increased dramatically across several industries due to the potential existence of a vast ecosystem of tools and goods (e.g., further NFT offers, yield farming, lending, borrowing, general decentralised finance (DeFi) , etc.). Currently, transaction costs are more over $300, as they were in May, while gas fees on Ethereum are more than $450 as a result of Yuga Labs’ release of their Otherside NFT collection.
Solutions to high transaction fees
In response to the high transaction costs incurred when a blockchain is crowded, many solutions have been devised. Platforms on layer 2 are one of the most often used options.
On top of the primary blockchain, or layer 1, layer-2 platforms operate, taking a percentage of the transactions and verifying them off-chain. L2s lessen the load on the primary blockchain by confirming transactions on a different network, minimizing congestion, and maintaining cheap fees while maintaining high speeds. L2 networks themselves offer fast speeds and relatively inexpensive prices. The Lightning Network, which supports scaling the Bitcoin blockchain, is the most widely used L2 platform.
Additionally, protocols and wallets have taken efforts to lower transaction fees for users. For instance, the Gas Tank function in Ambire Wallet allows customers to pay in advance to save transaction fees. The current gas fees are paid using credits, which will be applied to subsequent transactions. Therefore, if gas prices are low right now, a user might prepay a transaction using those prices and then transmit the transaction at a later time using the prepaid rates. Stablecoins like USD Coin (USDC) and Tether (USDT), which are less volatile than standard cryptocurrencies, can also be used by users to pay for gas fees.
