Well-known blockchain intelligence and analytics firm Coin Metrics notes that the Ethereum Improvement Proposal, EIP-1559, may not fully address the high gas fees on the network, which are a result of the high demand and usage of Ethereum at the moment.
Gas prices in Ethereum are at levels never seen before and unsuspected, so developers and the crypto community are devising ways to solve the problem of high commission rates on the network. Among the ideas arose the EIP-1559, an improvement proposal that will increase block size based on demand to avoid network congestion, set a protocol-calculated base fee that users must pay to confirm their transactions, and burn miner commission fees to keep transaction costs relatively stable. However, while this improvement proposal is the “hope” of many developers, the community, and some supporting miners to protect the network in the future, it seems that it is not the solution that they have been waiting for or that many are thinking of.
Un report posted by Coin Metrics, a well-known intelligence and analysis firm blockchain, which provides data, metrics and information on the crypto world, points out that the growing adoption of Ethereum, and the increase in the price of its cryptocurrency, may become an impediment for the EIP-1559 improvement proposal to offer a solution to the Gas problems in the long term; or at least, while the developers complete the construction of Ethereum 2.0.
Coin Metrics indicates that the high demand for Ethereum, due to the growth and revaluation of its cryptocurrency ETH, the use and demand of the Dapps, smart contracts and above all, of the DeFi and NFT, can cause the network's blocks to end up almost full, at their maximum capacity, congesting the network again and raising fees again; at least for short periods. On the other hand, the firm points out that since the base fees will be burned on the network, miners will receive as incentives the tips of users; which can also be raised due to the need to confirm transactions quickly.
It may interest you: Ethereum developers prepare measures to resist a possible 51% attack
Current gas mechanism in Ethereum
In their report, Coin Metrics explains that the current gas mechanism on the Ethereum network allows users to modify the costs of the gas fees they pay to miners to confirm their transactions, or to prioritize them so that they are confirmed quickly. When the network is congested and blocks are almost full, users start auctioning off gas fees, raising their bid each time so that miners prioritize their transactions. This causes costs to rise, as more users are willing to pay high fees; leaving less gas-charged transactions unconfirmed within the network.
EIP-1559 seeks to “eliminate” this gas auction by establishing a base rate algorithmically calculated by the network itself. However, it leaves open the possibility for users to pay tips to miners for their work.
The blockchain analytics firm notes that if the network becomes congested due to high demand, and blocks become constantly full again, tipping can work similarly to the current gas mechanism; where miners are incentivized to include transactions with a high gas price.
EIP-1559 does not solve the problem
For Coin Metrics, high transaction fees are fundamentally a scalability issue. As such, the firm notes that the short answer to whether EIP-1559 will solve high gas prices and make transaction fees less expensive is likely no.
As long as Ethereum's transaction processing capacity is low, around 160-210 transactions per block, high fees will continue to be present on the network due to high demand and usage. Wealthy users will always be willing to pay higher fees or tips to confirm their transactions as quickly as possible, leaving the poorest in a waiting list that can be endless.
“Gasoline prices will remain high as long as there is strong competition for block space.”
More predictable commission rates
However, while not considering it a completely effective solution, Coin Metrics notes that EIP-1559 will help improve the Ethereum user experience by making fees much more predictable.
Currently, it is a bit difficult to predict the gas costs of a transaction, which largely depend on its complexity. For example, if it is a simple ETH transaction, gas costs can reach 21.000 GWEI, while to perform a token swap within a DEX or decentralized exchange, it takes about 100.000 GWEI or more on average. The complexity and gas costs increase if interactions with smart contracts are involved.
“EIP-1559 should help reduce the variation in gas fees and give users a clearer picture of the actual fee they will be required to pay”.
Finally, in its report the firm points out that the real solution to Ethereum's high gas costs lies in the design of second-layer scaling solutions, or failing that, the arrival of Ethereum 2.0, which will help significantly reduce blockchain network congestion.
Recently, Vitalik Buterin, co-founder and developer of Ethereum, presented Optimistic Rollup, a second-layer solution developed by startup Optimism, which will help boost Ethereum’s scalability “100-fold.” Buterin explained that the arrival of Optimistic Rollup could happen this month, and will be enough to scale Ethereum to process up to 4.000 TPS while ETH 2.0 is being finalized.
At press time, the price of ETH is around $1.670 per unit.
Continue reading: Optimistic Rollups, the imminent solution to scale Ethereum “100 times”
