Ethereum's high gas fee crisis won't be solved by EIP-1559: Coin Metrics report

A report by analytics provider Coin Metrics has delved into the world of Ethererum transaction fees noting that they’re still at highest-ever levels and even a much touted approaching network upgrade is unlikely to alleviate the problem.

According to the Ethereum Gas Report by Coin Metrics, median fees on Ethereum have been consistently over $10 for most of 2021. Comparatively, the average Ethereum transaction fee reached just $5.70 at the height of the 2017/2018 bull run.

It attributed some of this increase to the increase in ETH prices themselves which will make gas more expensive. Since the beginning of 2021, ETH has surged 125% to current prices despite a correction of 19% from its all-time high of $2,050. However, over the same period, the median gas price has increased by 532%.

Different types of transactions require different amounts of gas — a simple ERC-20 token transfer uses much less gas than a complex smart contract operation for an automated market maker for example. However, it noted that rather than DeFi being the root cause of the high gas fees, it is simply more transactions in general.

“Since January 2020, the amount of gas used per transaction has trended downwards. This shows that increased transaction complexity is not responsible for high transaction fees.”

Ethereum transactions are currently auctioned, with those paying more gas taking miner priority and getting faster transactions than those that have set a lower gas limit.

The report noted that the current high fees are because the blocks are consistently full, around 95%, and have been since mid-2020 and the DeFi boom. For March 2021, Ethereum blocks have been 97%-98% full, the research found.

It explained that miners need to specify which transactions to include when mining new blocks and each block can only include a limited number of transactions (on average 160 to 200) due to the maximum block size.

“So miners naturally prioritize the transactions with the highest gas prices since they will earn them more money if these transactions are included.”

The report concluded that the highly anticipated EIP-1559 network upgrade, which has been designed to change the auction mechanism and burn some of the fees, is unlikely to solve the problem of high gas costs, and only scaling solutions will be the true long-term fix.

Coin Metrics explained that the upgrade will only help make fees more predictable as the cause of high fees is the scalability problem.

“If Ethereum can only process a few hundred transactions (on average) per block, there’s going to continue to be high fees as long as DApp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block space.”