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Ethereum Gas Fees: How Does GWEI Fluctuate?

Tuesday, June 04, 2024

Suppose you are behind the wheel in the middle of a brief but heavy traffic jam on the roadway. People get frustrated and anxious; cars drive at a crawling speed, yet everyone just wants to get there. This analogy perfectly sums up what has recently been known as high gas fees within Ethereum community. Gwei is the common unit that is used to estimate the gas fees, which can be described as the cost of using the Ethereum platform. It works as if during rush hour traffic, there is more patience expected from each car on the road, too; if there is more transaction activity occurring on the Ethereum blockchain, gas fees increase.

Why Gwei Goes Wobbly: Understanding Ethereum Gas Fee Fluctuations

However, the analogy of using rush hour to explain Ethereum gas fees is still rich in detail but not as simple as that. While road networks can be expanded, widening the space of Ethereum's network is not possible since it follows certain protocols. Therefore, before we start unraveling the volatility of Gwei, it's important to understand what is causing congestion on Ethereum "highway."

Network Demand: When Everyone Wants on the Blockchain

The core principle influencing gas fees is simple: supply and demand. This occurs especially when the Ethereum network experiences a high traffic of transactions; the fee for a transaction is referred to as gas. This spike can be caused by any event, say, the release of some highly anticipated DeFi application or the creation of an extremely popular NFT drop. It can be described to be like thousands of people trying to call taxis during a heavy rain shower, that is the situation that Ethereum users have to face during these periods. And based on the type of the request, called a Gas fee, users ready to pay more have their transactions prioritized in 'waiting for miners' lines.
An example of such a demand-oriented surge is interest in the play-to-earn game Axie Infinity, which began in August 2021. Many players were purchasing and fighting cute Axies, which resulted in network overload, creating bulky peaks for gas costs, where some transaction fees reached hundreds of dollars or more. This incident underlined the fact that gas always poses a scalability issue within Ethereum and an example of how an increase and user engagement can greatly affect prices.

Transaction Complexity: Not All Transactions Are Created Equal

It is essential to understand that not all the transactions on Ethereum mainnet come in the same form, or in other words, not all transactions that are being initiated are created equally. It also explains why simple token transfers are relatively less demanding to the miners than extensive engagements with smart contract deployments. These smart contracts on which the DeFi applications and many NFTs are built usually have more lines of code and are relatively heavier, requiring more processing to execute. Of course, such interactions are going to cost a higher gas fee than when using the set functions generally.

Think of it this way: while it is quite simple and takes very little time to compose a brief and short email, it would take slightly more time and a number of efforts to develop as well as design a multifaceted website. Similarly, to showcase it with examples, on Ethereum, sending a basic token transfer is as simple as writing a 'Hi' email, whereas engaging with a DeFi protocol entails the work of building a website.
Another example of the effect of this scenario is the DEX hacking that took place in March 2022. Hackers used a weakness in a DEX known as Meter Passport and owing to this, a bot attack was launched to drain the DEX's liquidity as suggested by reports. Such rudimentary activities, let alone these large-scale and complex ones which need more computational work to be done, saturated the network and spiked the gas prices for a short while.

Blockchain Congestion: When the Pipes Get Clogged

Okay, we know that high demand and the costly nature of transactions are some reasons why gas prices rise. But there's another layer to the Gwei fluctuation story: slow down of the blockchain. Although I prefer to describe Ethereum as a highway with limited passing areas, for the sake of straightforward definition, one can look at Ethereum as a set of cars on the road. When the actual number of transactions evokes this capacity, you begin to experience a lag. This congestion results into slow processing, for transactions to get processed they have to compete for the available processing time. When the competition increases and many investors are willing to occupy the same space, gas fees skyrocket.

An example is the "DeFi summer" that happened in 2020 when various projects received massive attention and utilization from individuals. The rise of a wide variety of DeFi applications stimulated the growth of transaction activity on the Ethereum network to a great extent. This raise, combined with the intricate series of transactions that DeFi entails, led to longer periods of high gas fees, typically making even basic exchanges expensive for the user. This particular congestion gave birth to the prospective of Layer 2 scaling solutions because of the former Ethereum pre-upgrade experience.

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Mitigating the Gwei Maze: Strategies for Lower Fees

Even as we accept that navigating the world of Ethereum gas fees is like solving a puzzle of unpredictable Gwei, it is still possible for users to chart their way around the cost front. Here are some strategies to keep your transaction fees in check:
Become a Time Traveler (Almost): Technological traffic and fuel prices are erratic and can change from one time of the day to another or one day of the week to another. Weekends and off-peak trading generally receive few sales, meaning there is low trading and, therefore, low gas fees. Some third-party services, for example, ETH Gas Station or GasNow, can inform about actual gas prices and hence plan individual actions for less congested periods. Think about the possibility to somehow jump into the time machine or, at least, avoid getting stuck in the middle of rush hour traffic – this is what is behind transaction timing on Ethereum.
Embrace the Estimate (But Set Limits): Gas prices are quite similar to transaction fees in Bitcoin – most Ethereum wallets provide their users with gas price estimations. Of course, these are not exact estimates, but they are relatively accurate if you are looking for an approximation of how much you're going to spend on the gas of your transaction. Although understanding the actual speed and cost of the transactions is essential to promote the usage of the network, one has to keep the maximal gas price in mind to prevent the risk of paying high fees. We can compare it to planning how much money we have to spend on a car and on the journey, in general. You do not want to remain on the central Blockchain highway because that is where your fuel ran out.
Batching Transactions (Ride-Sharing Approach): An important technique that people should be aware of is batching the transactions that they are making. This would also serve to collectively lower the price of gas to be spent in each transaction, just like Uber pool or group where people heading to the same way are grouped together. This means that each one has the potential of being executed cheaper by incorporating it in a single transaction with another one.
Exploring Alternative Routes (Layer 2 Solutions): There are several highways yet to be considered apart from the Ethereum network. Layer 2 solutions like Polygon or Arbitrum allow moving the transactions off the main Ethereumnet, making them faster and cheaper. Although these solutions will not be as useful for every type of transactions, they can be very beneficial to certain users who wish to avoid the high gas costs on the Ethereum main network. It is like having the opportunity to choose the convenient route to leave by avoiding traffic congestion – Layer 2 solutions are built to be an auxiliary route for Ethereum transactions.

The Road Ahead: How Ethereum 2.0 Might Change the Gas Game

Currently, a common complaint that many have with Ethereum is the high gas fees involved – but there is hope. Ethereum 2.0, a tremendous improvement over the current network, brings the opportunity to change the scaling and possibly gas costs in the long term. This is available as of now only in a phased beta implementation, and it brings a new concept of "sharding." Think of how the Ethereum highway can be widened from a few lanes to multiple multilane highways. Sharding, in its simplest definition, divides the Ethereum network into separate sections, making it easier to handle high call traffic with the added bonus of decreasing gas fees.

However, Ethereum 2.0 is still a work in progress, and we have yet to see the full extent of how this affects gas fees. Of course, it is necessary to remember that there is a necessity of a large-scale implementation and a broad experimental stage for Ethereum 2.0 reaches its full potential.

​All in all, analyzing the fluctuations of Gwei and the relations that define the emergence of gas prices is helpful for users in interacting with the Ethereum platform. Fortunately, there are some practical tips on how to reduce its impact: using appropriate timing to perform certain actions, estimating the amount of gas needed for a transaction, performing multiple transactions at once, and considering Layer 2 solutions. Ethereum 2.0 will better recognize the importance of organic community growth and decentralized coordination. With the current state of ETH gas fees sitting at roughly zero on the horizon, it renders the future of Ethereum gas fees more sustainable and seemingly user-friendly.

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