Why Ethereum Transaction Fees are so High and How to Lower Them

The amount that transactions cost in Ethereum depends on how busy the blockchain is and how complicated the operation is. Ethereum has a lot of users, but it doesn’t work well. This makes it more busy and keeps fees high. Even though I turned on The Merge update, nothing changed.

In Ethereum, the size of the commission is based on how much gas an operation can use and how much gas costs at a certain time. There are a few main ways to cut Ethereum fees. Among them are using the network at times when it isn’t as busy, simulating or grouping transactions, and other options.

People often use second-tier solutions and sidechains to lower the transaction fees for Ethereum assets.

The Merge Effect on Ethereum Fees

Since Ethereum switched to the Proof-of-Stake consensus algorithm, there have been no changes to how commissions are set for transactions on the network. The shorter time between blocks may be the only thing that affects the cost of transactions in Ethereum indirectly. Before The Merge was turned on, blocks were made every 14–15 seconds. After The Merge, the time between blocks was cut to 12 seconds. The Ethereum blockchain is now about 20% faster, which can help reduce network load, but not by much.

As part of the Shanghai hard fork, the first update after The Merge should happen in the second half of 2023. It will change the settlement mechanisms at the blockchain level to lower fees.

The use of rollups will be increased and sharding will be added as part of further improvements. Vitalik Buterin says that this can increase the number of transactions on the network to 100,000 per second while lowering the fees for transactions on the Ethereum network.

What is Ethereum Gas?

In Ethereum, “gas” is a word for the amount of computing power needed to finish an operation. To transfer a token or create a new asset, to deploy or interact with a smart contract, or to issue a new token or asset, you need virtual machine resources. The amount of them is measured in “gas.”

The price of gas is shown in Gwei, which is a small part of an Ethereum coin and is equal to 0.00000001 ETH. The amount of computing power needed for a transaction isn’t always the same. It depends on how busy the Ethereum blockchain is and how complicated the operation is.

Because of this, things like the gas limit happen. This is the amount of computing power needed to finish a transaction, whether it’s an exchange of assets in the DeFi protocol or the transfer of USDT ERC-20 between addresses. You can think of the gas limit as the number of liters of gas you need to get from A to B. The cost of the transaction is found by multiplying the amount of gas needed by how much it costs in Gwei. If your transaction needs 21,000 units of gas and a unit of gas costs 14 Gwei on the market, then the fee will be 0.000294 ETH.

Second Layer Solutions

Even though Ethereum’s commissions are still high and there are no plans to fix the problem soon, there are ways to pay less for transfers. There are a lot of second layer protocols for Ethereum that are meant to solve the problem of high fees.

Rollups is the technology behind second-tier solutions for Ethereum. Transactions in these solutions take place outside of the main Ethereum network. They are put together into big groups and only then are they confirmed at the “basic” level, in the Ethereum blockchain.

Arbitrum, Optimism, Loopring, ZKSync, Boba Network, and Aztec Network are all well-known L2 projects.

Sidechains in Ethereum have their own security system and consensus algorithms, so they can be thought of as networks that are separate from Ethereum. Sidechains are like second-level solutions in that they aim to speed up and lower the cost of transactions for crypto assets on the “parent” network.

Other Ways to Lower Ethereum Fees

Choose a time when the network is least busy. The Ethereum Price service is one that shows these kinds of stats. Based on the information he has, you will pay the least for the transfer on Monday in the morning. Some crypto wallets, like MyEtherWallet and Metamask, let you set the amount of commission you want to pay when you send a transfer.

You might want to use other blockchains that offer cheaper and faster transactions. For example, the ecosystems of BNB Chain, Matic (Polygon PoS), and Fantom, which are EVM-compatible networks, are similar to those of Ethereum. There are also projects that don’t have anything to do with Ethereum, like Solana, Cardano, or Near. Use apps like Balancer that are made for this purpose and can combine the transactions of multiple users to lower the fees for each one.