Layer 1 and the Gas Fee 😱Scaries
Last updated
Last updated
“Gas refers to the fee required to conduct a transaction on Ethereum successfully.” [Ziechmann] We won’t dig into what is “a transaction on Ethereum”. We would avoid diving into explaining “proof of work” (PoW) v. “proof of stake” (PoS) ZKP [Ishai] and consensus algorithms [Rosic-1], assuming our reader is already familiar with the subject and what it has to do with Ethereum and EIP 1559 [Kim]. As the Ethereum network grows, so does the “total gas spent per day” metric [Conner 1], and so do gas fees. And who, in their righteous mind, would call a good thing ⛽️“gas”?
The economics of the Ethereum Network is complicated [Hess] and deserves a separate white paper [Conner 1 and Conner 2]. A quick recap for our purposes: it’s like buying 🍅tomatoes in August on a village market. You yell: “I will buy X pounds [kilograms, whatever] of decent kumatos for Y dollars.” Then farmers waive for you to visit their stalls. Some vegetables might be very good, some just plain good, some huge, some big. Now imagine you returned home. If you multiply the amount of all the tomatoes from your basket and then divide it by the amount of money spent — this is your average tomato transaction fee (and word “tomato” here supposedly takes all 🧐the “zero-knowledge,” “reverse bidding” and other crypto jargon away).
From January 2021 until May 2021, the average transaction fee fluctuated between $7 and $23.03 (February 20). However, in May 2021, this metric skyrocketed with an almost threefold increase as of May 12 ($65.02). The increased fee makes micro-investments ($200 and below) in DeFi quite complicated. Therefore, investors need to be skillful enough to pick transactions that will yield profit soon sufficient to recoup the transaction fee.
Alternatively, investors can use various other quite innovative strategies [Martin]. Pieces of advice available for amateur blockchain investors include “trying to make transactions at night when there is less business activity going on.” 😂 Do you remember the good old days of the dial-up Internet and the glorious brand of US Robotics fax modems? Save your Gwei, Ladies, and Gentlemen [Skvorc].
