news Don’t just blame DeFi for paying high ETH gas fees

[kyoukage01 3181]

Do you exclusively blame DeFi for rising ETH gas fees today?

 

As DeFi is becoming a craze, many articles and reports contend that the rising ETH gas fees can be attributed to it. But this particular article insists otherwise. It is postulating that even though DeFi can be considered a culprit, it is not the only one. There are other factors that influence the rising gas fees as well. Among those other factors pointed out are multi-signature platforms and the costs of creating forwarding contracts.

 

Spoiler

Don’t just blame DeFi for paying high ETH gas fees

Josh Schwartz

 

 

How institutions store and secure digital assets have a fundamental impact on transaction fees.

 

Transaction costs on the Ethereum blockchain are at record highs, and no one will let you forget it. Reports often detail how decentralized finance platforms are the cause of ever-rising gas fees — tokens paid to miners who confirm and enable transactions on the Ethereum blockchain. Yes, DeFi does play a role, but the problem is institutional. 

 

Some exchanges, custodians and asset managers have been using multisignature platforms to secure their digital assets. Several years ago, multisig was viewed as a respected attempt to prevent private keys from being compromised. Despite initial adoption, numerous shortcomings have made institutions both question and transition from the multisig approach, in many cases replacing it with multiparty computation, or MPC, infrastructure.

 

Among many disadvantages, multisig platforms are not natively supported on the Ethereum blockchain. Instead, institutions are required to execute smart contracts that implement the multisig logic — i.e., a smart contract that accepts deposits and requires multiple signatures to withdraw from it.

 

Creating these multisig smart contracts to secure exchange clients’ funds involves gas fees, which cost millions of dollars. But it’s not just people’s wallets that have been suffering. Because fees are denominated in Ether (ETH), a more congested network may lead to slower development of Ethereum-based projects.

Multisig gas economics

Creating a multisig wallet implemented as a smart contract costs over 1 million gas units (approximately $30 at current value). In addition, every deposit or withdrawal costs more than 100,000 gas units. Therefore, multisig institutions end up paying a higher fee, given they have chosen to use a smart contract function.

 

In contrast to the creation of a single signature MPC wallet, there are no wallet creation fees and deposits, and withdrawals cost a standard 21,000 gas units.

 

Given gas deposit fees are paid by end-users, any institution implementing a smart contract may initially think this wallet creation fee is simply a one-time operation. Unfortunately, there is still another major issue with multisig addresses on the Ethereum network that results in another unnecessary fee: attribution.

Attribution

When an institution such as an exchange wants to identify deposits from different users, it creates a unique receive address for each client.

 

Unlike the Bitcoin network and other blockchains, Ethereum does not permit a transaction to include multiple inputs. Therefore, institutions will instead forward all deposits from each client’s unique receive address to a secure address where withdrawals are made.

 

The usual workaround to receive addresses for institutions is to use a forwarding contract or a way to forward any incoming funds to a new location (the omnibus multisig wallet). While this achieves attribution, it’s also one more smart contract that needs to be implemented.

 

Creating a forwarding contract costs around 200,000 gas units; depositing the forwarding contract costs approximately 60,000 gas units. These are all needless costs, further congesting the Ethereum blockchain.

Cost of doing business?

Suppose a new crypto exchange is seeking to establish its Ethereum wallet infrastructure with a separate receive address for each client. Based on the above pricing, if the exchange used a multisig infrastructure, it would pay $6 every time it signed up a new client and created a new receive address for them. This is before the client even deposits any funds.

 

The exchange will likely view this as part of its customer acquisition costs or the cost of doing business (if they’re even aware of this incurred cost, to begin with).

 

A recent report states that Coinbase has 35 million customers. At today’s prices, it would cost $245 million to set up a multisig infrastructure to support said clients — whether or not these clients choose to conduct transactions.

A solution to the problem

As with any maturing market, institutions have experienced increased fee compression over time, and firms have been seeking methods to scale their business at a lower cost without compromising on security.

 

If institutions could reassess their underlying infrastructure and consider a solution that is not dependent on an individual blockchain for support, they could easily reduce expenditure and limit infrastructure set-up fees. Gas fee payments to simply mirror multisig infrastructure on Ethereum would become a thing of the past. Using alternative systems would go a long way in reducing the congestion on the second-largest blockchain.

source: https://cointelegraph.com/news/don-t-just-blame-defi-for-paying-high-eth-gas-fees

 

Sure, we can play the blame game with DeFi or any other causes out there, but the problem with gas fees still remains. If a solution can be made, it better be done soon, as Ethereum users' dissatisfaction with its current situation might jeopardize ETH's position as the second most popular cryptocurrency after Bitcoin.

 

Do you agree with the article's point in that DeFi is not the only major problem with todays's gas fees? Or is DeFi definitely to blame since the other problems it pointed out were already in existence for so long?

 

[Whited35 15285]

1 hour ago, kyoukage01 said:

Do you agree with the article's point in that DeFi is not the only major problem with todays's gas fees? Or is DeFi definitely to blame since the other problems it pointed out were already in existence for so long?

@kyoukage01 Yes, this article has pointed out some crucial reasons to cause this much higher gas fee on the Ethereum blockchain network. As this article has pointed out, we can not regret the fact that multisignature platforms have put more gas units  for depositing and withdrawing crypto coins which has later caused more transaction fees due to increasing demands and usage of such infrastructures in the crypto world.

Second point which this article has missed to cover is, ponzi schemes based on Ethereum network. Such schemes first pay the amounts to the earlier investors by collecting the amounts again from the new investors, they just keep rotating the funds and greedy people falls into their traps by making so many transactions to expect the high returns which has also caused the more complexity and hence the more network fee for miners to mine the transactions. 

[CryptoDemon 370]

2 hours ago, kyoukage01 said:

Do you exclusively blame DeFi for rising ETH gas fees today?

 

As DeFi is becoming a craze, many articles and reports contend that the rising ETH gas fees can be attributed to it. But this particular article insists otherwise. It is postulating that even though DeFi can be considered a culprit, it is not the only one. There are other factors that influence the rising gas fees as well. Among those other factors pointed out are multi-signature platforms and the costs of creating forwarding contracts.

 

  Reveal hidden contents

Don’t just blame DeFi for paying high ETH gas fees

Josh Schwartz

 

 

How institutions store and secure digital assets have a fundamental impact on transaction fees.

 

Transaction costs on the Ethereum blockchain are at record highs, and no one will let you forget it. Reports often detail how decentralized finance platforms are the cause of ever-rising gas fees — tokens paid to miners who confirm and enable transactions on the Ethereum blockchain. Yes, DeFi does play a role, but the problem is institutional. 

 

Some exchanges, custodians and asset managers have been using multisignature platforms to secure their digital assets. Several years ago, multisig was viewed as a respected attempt to prevent private keys from being compromised. Despite initial adoption, numerous shortcomings have made institutions both question and transition from the multisig approach, in many cases replacing it with multiparty computation, or MPC, infrastructure.

 

Among many disadvantages, multisig platforms are not natively supported on the Ethereum blockchain. Instead, institutions are required to execute smart contracts that implement the multisig logic — i.e., a smart contract that accepts deposits and requires multiple signatures to withdraw from it.

 

Creating these multisig smart contracts to secure exchange clients’ funds involves gas fees, which cost millions of dollars. But it’s not just people’s wallets that have been suffering. Because fees are denominated in Ether (ETH), a more congested network may lead to slower development of Ethereum-based projects.

Multisig gas economics

Creating a multisig wallet implemented as a smart contract costs over 1 million gas units (approximately $30 at current value). In addition, every deposit or withdrawal costs more than 100,000 gas units. Therefore, multisig institutions end up paying a higher fee, given they have chosen to use a smart contract function.

 

In contrast to the creation of a single signature MPC wallet, there are no wallet creation fees and deposits, and withdrawals cost a standard 21,000 gas units.

 

Given gas deposit fees are paid by end-users, any institution implementing a smart contract may initially think this wallet creation fee is simply a one-time operation. Unfortunately, there is still another major issue with multisig addresses on the Ethereum network that results in another unnecessary fee: attribution.

Attribution

When an institution such as an exchange wants to identify deposits from different users, it creates a unique receive address for each client.

 

Unlike the Bitcoin network and other blockchains, Ethereum does not permit a transaction to include multiple inputs. Therefore, institutions will instead forward all deposits from each client’s unique receive address to a secure address where withdrawals are made.

 

The usual workaround to receive addresses for institutions is to use a forwarding contract or a way to forward any incoming funds to a new location (the omnibus multisig wallet). While this achieves attribution, it’s also one more smart contract that needs to be implemented.

 

Creating a forwarding contract costs around 200,000 gas units; depositing the forwarding contract costs approximately 60,000 gas units. These are all needless costs, further congesting the Ethereum blockchain.

Cost of doing business?

Suppose a new crypto exchange is seeking to establish its Ethereum wallet infrastructure with a separate receive address for each client. Based on the above pricing, if the exchange used a multisig infrastructure, it would pay $6 every time it signed up a new client and created a new receive address for them. This is before the client even deposits any funds.

 

The exchange will likely view this as part of its customer acquisition costs or the cost of doing business (if they’re even aware of this incurred cost, to begin with).

 

A recent report states that Coinbase has 35 million customers. At today’s prices, it would cost $245 million to set up a multisig infrastructure to support said clients — whether or not these clients choose to conduct transactions.

A solution to the problem

As with any maturing market, institutions have experienced increased fee compression over time, and firms have been seeking methods to scale their business at a lower cost without compromising on security.

 

If institutions could reassess their underlying infrastructure and consider a solution that is not dependent on an individual blockchain for support, they could easily reduce expenditure and limit infrastructure set-up fees. Gas fee payments to simply mirror multisig infrastructure on Ethereum would become a thing of the past. Using alternative systems would go a long way in reducing the congestion on the second-largest blockchain.

source: https://cointelegraph.com/news/don-t-just-blame-defi-for-paying-high-eth-gas-fees

 

Sure, we can play the blame game with DeFi or any other causes out there, but the problem with gas fees still remains. If a solution can be made, it better be done soon, as Ethereum users' dissatisfaction with its current situation might jeopardize ETH's position as the second most popular cryptocurrency after Bitcoin.

 

Do you agree with the article's point in that DeFi is not the only major problem with todays's gas fees? Or is DeFi definitely to blame since the other problems it pointed out were already in existence for so long?

 

Blaming others with your own fault is not good because they have a good reputation that they are keeping secured and you are just going to destroy it. Crypto currency is made to unite not to destroy each other.

[bitcoin-shark 1928]

The defi sites are an extraordinary earning opportunity high fee/gass on etherum blockchain is not their fault but is from too many transactions so I believe that with a little time everything will return to normal and fees will be acceptable again...

[Mehar446 280]

Yes we should not blame DEFI for all this as this is due to the scalinility problem of ethereum blockchain.

[malik6314193 5449]

Current increase in gas fee of eth transactions is very annoying. Many tokens work on ETH network and now it is very hard to make transaction of such coins. I think gas fee should be decreased. 

[Swapzone 174]

Not just De-Fi, scalability is also a problem. That is why the developers are working on Ethereum 2.0!

[kyoukage01 3181]

On 8/29/2020 at 1:41 PM, Whited35 said:

Second point which this article has missed to cover is, ponzi schemes based on Ethereum network. Such schemes first pay the amounts to the earlier investors by collecting the amounts again from the new investors, they just keep rotating the funds and greedy people falls into their traps by making so many transactions to expect the high returns which has also caused the more complexity and hence the more network fee for miners to mine the transactions. 

For Ponzi schemes to deal a significant impact on ETH gas fees, they would have been either been able to raise such a huge amount from scamming new investors, there are simply too many of them today, or both. Which would be quite a disturbing thought, as we know that Ethereum is second only to Bitcoin. 😟

 

On 8/29/2020 at 10:18 PM, SilverF said:

In addition, the miners also have part of the guilt, the desire to get more and more per transaction, ended giving priority to defi.

Maybe they do, if what they have been demanding for transaction fees have been unreasonable and more than what should be all along. Maybe they think they can afford to raise transaction fees more as long as ETH users are willing to pay for it, in which case the users ought to start to complain more about it and resolve the issue.

On 8/29/2020 at 10:18 PM, SilverF said:

Have you read about the EIP-1559 mechanism?

I've just barely learned crypto a few months ago, so no I haven't. Could you give a quick explanation about it, for the sake of the other readers as well?

 

[percare 3192]

Partially it is defi but the main reason is the ethereum network on its own. It doesn't scale as Bitcoin doesn't scale the way things are right now. When it is used a lot fees are going higher and making it useless for the rest use cases it has. I tried to read this cointelegraph article but it didn't make a good case that defi is not responsible.

[lharost 1526]

It was not only DeFi hype surely, the increase in gas price started when Uniswap got popular and many traders specially whales started using it to buy tokens that are based on Ethereum blockchain because it was just easier to connect their wallet to Uniswap and get done with their trade instead of creating an account on an exchange and deal with centralized exchanges problems, even though DeFi made an impact on gas price that doesn't mean it wouldn't happen if DeFi did not exist, it would only take longer for gas prices to go up.

 

I just hope Ethereum 2.0 can manage network traffic better and decrease fees significantly so that we see more centralized exchanges like Uniswap enter this area and get popular among smaller retailers too.

[duncun007 3577]

its less about blaming DEFI and more about blaming the people for falling fot the same hype every time and it ends up scamming and making people lose money and through the whole thing we see the gas price rice just like back in the ICO days.

[Mwangi 5611]

I aagree, I realize the fee for Etherium is very high , higher than that of bitcoin so it would be important for me to just enjoy this kind of an exchange and need to work and protect my work right now , the work to which am able to really define for the right ideas are to have a different better coin , different from that of bitcoin or ether

[Raqeebzy 6456]

On 8/29/2020 at 4:21 AM, kyoukage01 said:

Do you agree with the article's point in that DeFi is not the only major problem with todays's gas fees? Or is DeFi definitely to blame since the other problems it pointed out were already in existence for so long?

DeFi definitely played a huge role in the spike of the network fee. However, it isn't the only factor as I have mentioned somewhere before. Some other factors like Ponzi schemes based on ETH and Uniswap pumps also done their part; a lot want their transactions processed fast enough not to miss out, so pumping the gas fee for earlier processing. 

[magd 5231]

This is not the first time that this rise has occurred, so there is no problem for me, and I do not blame anyone because in short it will return to the decline, and these fees are there are things that impose their high and low

[Honny143 13612]

Well I agree with this article only DeFi projects not increase ETH gas fees, there are several probabilities also involved like swipe tokens in Dex and ponzi schemes, both these increase huge transaction in ETH blockchain, everyone knows when demand increase then price also increase, and ETH miners also want cashout this demand and increase gas fees.

[kyoukage01 3181]

I'll have this comment to include another point of view in this discussion.

 

There are probably many causes indeed to rising gas fees, in which DeFi can be considered as the most prominent in this point. What solutions can be offered then?

 

If Ethereum 2.0 can be offered as a solution, experts are saying that is not the solution to rising gas prices (presumably) due to DeFi, as the development team did not anticipate the hype created by DeFi. Maybe the DeFi craze itself might be the reason for the delay of the release of version 2.0 since the team have to accommodate this into account as well. The article below can better explain this point.

 

Spoiler

DeFi experts say that Ethereum 2.0 is not the answer to high gas fees

Ting Peng

 

 

A better solution might come up before it even exists.

 

High gas fees for transactions on the Ethereum blockchain are at record highs amid the decentralized finance hype that has attracted many new users to get on board on the Ethereum network.

 

DeFi experts and computer scientists got together on Sept. 3 for Cointelegraph China’s DeFi Marathon event shared their thoughts on the high gas fee potential solutions. Although they have different opinions on solutions, they all agreed that Ethereum 2.0 is not the answer to high transaction costs.

 

Sergej Kunz, CEO of the oldest decentralized exchange 1inch, Mounir Benchemled, the Founder and CEO of ParaSwap, a middleware layer that connects protocols, dApps and trading venues and professor Alex Kumanovic, co-founder at bloXroute Labs, a blockchain distribution network or BDN that allows global network communicate faster, said Ethererum 2.0 has its trade-offs. It still might not be scalable and secure enough to facilitate the users’ transactions.

 

Ethereum 2.0 is a major upgrade to the current Ethereum public mainnet. Although it’s designed to accelerate Ethereum’s usage and adoption by improving its performance, Kunz pointed out that it would scare away many new users to get into the DeFi space with the current gas price.

 

The upgrade did not really anticipate the DeFi hype. So, to make sure everyone can get involved, the infrastructure needs to be thought through all over again. Kunz stated that:

“You have to rethink everything. You can migrate smart contracts to the code but it’s not not scalable. To be able to scale, you have to create standards and bring new protocols based on the new sharded architecture, such as NEAR which is similar to Ethereum 2.0.”

Mounir added that even though Ethereum 2.0 could scale, it might take too long for it to happen. The reason for the delay is mainly due to security. The core team has to make sure it's secure enough before launching it given how critical it is.

 

Kunz, Mounir and Kumanovic all agreed that it is not  practical for all projects to move on the Ethereum 2.0 as well, stating:

“For it to work, all applications would need to move towards one single platform. Major projects might have consensus, however for other projects who have their own agendas, it might be hard. New bridges will be built to allow interoperability.”

Mounir says solutions are being introduced, such as layer 2 solutions to solve the high costs. Layer 2 is used for all blockchain scalability solutions, which are built on a layer below the blockchain's main net. The general idea is to move the transactional load, or at least part of it, off the blockchain network.

 

However, Mounir pointed out that the complexity of explaining how layer 2 works to end-users and the risk of not being able to pay the funds immediately to these users are the most concerns with this solution. In which he suggested it’s better for users to look for existing tools. Kumanovic’s project has been working to avoid high fees.

 

According to Kumanovic, bloXroute has been building an infrastructure that helps traders to trade faster and smarter by utilizing the project’s Tx Stream tool.

 

Three types of APIs are embedded in the tool, which allows traders to hear of transactions faster. This means by utilizing the tool, traders are more likely to win “race scenarios” like liquidating CDPs, Capture arbitrage opportunities, increase the chances of being mined in the next block and increase your chances of beating fee congestion. He explains:

“One API allows transactions to reach out to the mining pool faster than others [...] The second API is for transaction fees. By looking into the entire space, we can bridge the traders or anyone who subscribes even before the miners know what’s happening. The third API we are working on is for providing real-time feedback on traders’ transactions…”

Kumanovic concluded that before Ethereum 2.0 exists, we have to live our lives. We have to  work with everyone involved: community, transaction generators, miners and build applications and bring users on board before 2.0 happens.

source: https://cointelegraph.com/news/defi-experts-say-that-ethereum-20-is-not-the-answer-to-high-gas-fees

 

[Mcd0d0 5882]

On 8/31/2020 at 7:48 PM, Mwangi said:

I realize the fee for Etherium is very high , higher than that of bitcoin

Well, that's true mate, the minimum fee for ethereum is $50 which is too expensive than bitcoin because the bitcoin is only having mostly $10 per transaction in yobit so it's better to exchange it first to the coin which is having a small amount of fee like litecoin and ripple.

[rekter 8129]

On 8/31/2020 at 11:24 AM, lharost said:

....

 

I just hope Ethereum 2.0 can manage network traffic better and decrease fees significantly so that we see more centralized exchanges like Uniswap enter this area and get popular among smaller retailers too.

That could take a long time. My guess is that this is getting way worse with the biggest bull run yet, erc20 tokens will be too expensive to move for normal people and Vitalik won't release eth 2.0 until everything is ready, and we don't know when that is going to be.

 

The whole eth code is a beast and they can't mess up anything, otherwise people will exploit the bugs and eth will crash again.

[DiamondBit 720]

On 8/29/2020 at 5:22 PM, Swapzone said:

Not just De-Fi, scalability is also a problem. That is why the developers are working on Ethereum 2.0!

I do not get your point at all, ethereum 2.0 will only force people not to buy mining equipments again, this could affect the companies producing the equipments. Also power companies will not be able to receive payment from many miners again. 

[Omar Ommeish 4872]

On 9/5/2020 at 5:35 PM, magd said:

This is not the first time that this rise has occurred, so there is no problem for me, and I do not blame anyone because in short it will return to the decline, and these fees are there are things that impose their high and low

Yes, it is not the first time, and in every period of pressure on the network the fees rise and I think that with the passage of time the developers will work to develop the network to receive more operations.

[annayks 2314]

It is not only DeFi, but it is also the Ethereum blockchain to blame for the high fees. Everytime it offers something good and people start using it it becomes unusable. The same happened with cryptokitties and maybe the same thing will happen again if the nft becomes popular.

[Johermi 1170]

As the DeFi markets have a total value of close to $ 3 billion blocked, the Ethereum network is receiving clear pressure that is clearly showing. In its current state as a proof-of-work blockchain, it simply cannot scale to cope with this level of use. The net result has been an increase in the costs of using the network and an unprecedented increase in gas consumption. So DeFi does have some fault, not all of it, but it does have

[Captain Karim 0]

I believe that DeFi's projects on the Ethereum network were the main reason for the rise in gas fees because as we have seen over the past few weeks when the noise around DeFi has subsided, Ethereum fees are starting to drop again.

[Dorjoy12 8962]

7 hours ago, Captain Karim said:

I believe that DeFi's projects on the Ethereum network were the main reason for the rise in gas fees because as we have seen over the past few weeks when the noise around DeFi has subsided, Ethereum fees are starting to drop again.

@Captain Karim  its true that the DeFi project has huge effect on eth gas fee increase but there has another reason too Becuase you know all the erc token get transfer by eth address and this year eth account increase 60% so i think for this some reason eth gas fee Increase like bitcoin..              

[hanguyen 41]

Since ethereum's transaction fees are increasing, I will avoid trading with it. There are many promising cryptocurrencies in the crypto market.