High Ethereum gas fees make it impractical for ERC-20 projects to carry out microtransaction payments on Ethereum. This makes it pointless using the Ethereum network for one of its fundamental use cases.
Gas prices are a fraction of Ethereum. For a trader to carry out an activity on the Ethereum network, they must pay a price which is calculated in gas.
Miners need these prices to carry out transactions. Gas fees vary depending on network demand. A transaction can be hindered or declined if it fails to meet the miners’ threshold.
The miners’ threshold is contingent on network usage and congestion. An overflowing network benefits the miner in that they could charge high gas fees.
Yet, congestion on the network also results in unconfirmed transactions and prolonged waiting times. This makes it difficult to use smart contracts, which poses detrimental effects for the future of Ethereum as a smart contract platform.
Plus, some companies pay their contractors in Ether due to low-cost transaction fees. Given the current circumstance, it is financially unfeasible, which leaves no reason to use the Ethereum network.
Factors that have led to high gas fees
A few factors have contributed to Ethereum’s soaring gas fees. One of them is the DeFi development.
DeFi, which stands for decentralized finance, covers financial services that use smart contracts to smooth transactions without a mediator. One of DeFi’s projects is SushiSwap, which sparked a surge in transaction fees within a week from its commencement. Funds have been going towards the DeFi, which has accounted for the high gas fees.
Serenity, formerly known as Ethereum 2.0, has also been a factor in the surge in gas fees. Serenity will shift Ethereum from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This will spiral Ethereum’s throughput and supersede its miners with validators who stake their Ether to preserve the network.