Fee madness at Ethereum: Coinbase Pro lets customers foot the bill20. September 2020
Ethereum is bursting at the seams – thanks to DeFi Since the launch of the Uniswap token UNI, network fees have reached a new high. Coinbase Pro has now pulled the rip cord.
Ethereum is more in demand than ever: As a first mover among smart contract platforms, the network has established itself as the standard for decentralized applications (dApps). In addition to smart contract compatibility, this is also due to the fact that the ERC-20 standard Ethereum made it comparatively easy to create new “crypto currencies”. The problem: Ethereum has been reaching the limits of its scalability for some time.
With corresponding consequences for the network fees, which at Ethereum are called gas fees
Gas fees are incurred for every transaction in Ethereum – this applies to both Ether, the native currency of the Ethereum Blockchain, and Altcoins, which are based on one of the Ethereum standards. In addition to transactions, i.e. moving ether and tokens, every computing operation of a smart contract costs gas – the more complex, the higher the gas price. In the Ethereum Yellow Paperthere is a list with the gas fees for individual functions of a smart contract.
The gas fees are paid in ETH. To avoid mix-ups, the gas fees are usually denoted in Gwei. One Gwei corresponds to 0.000000001 ETH – a “nanoether”. At least 21,000 gas units are required for a standard transaction. On the one hand, Ethereum users have the option of determining how much they want to pay for a gas unit. You can also increase the gas price limit above the minimum value of 21,000. The desired transaction has a better chance of being processed by the miners, i.e. those who provide the computing power.
The principle of competition prevails: The Ethereum miners prefer the blocks with which they can earn the most gas fees. When the Ethereum network is particularly busy – which is usually the case – the Ethereum miners have the luxury of being able to put less profitable blocks behind. So if you want to see your Ethereum transaction processed quickly, you should have deeper pockets.
Uniswap becomes the largest Ethereum “Gas Guzzler”
The hype about decentralized financial platforms ( DeFi ), which started in June with the launch of COMP, has raised fees in the Ethereum network to unprecedented heights. No wonder: After all, almost every DeFi protocol to date has been based on Ethereum. The decentralized exchange platform Uniswap is currently causing high spirits among Ethereum miners. Together with the Ethereum variant of the Stable Coins Tether (USDT), Uniswap is currently one of the largest “gas eater” in the Ethereum ecosystem.
The Gas Guzzler at Ethereum. Source: Etherscan.
What makes miners happy causes small investors to frown. A calculation example: If you want to exchange a UNI token for ether on Uniswap, you have an exchange rate of currently 0.0134033 ETH (around 5 US dollars) per UNI. The gas fees are almost three times as much: A whopping 0.0347 ETH would be charged in the example transaction – thanks to the high utilization of Ethereum.