Who will save the congested Ethereum and high gas fees?

Transaction fees on the Ethereum network recently hit a new hourly record. According to data from on-chain analytics firm Glassnode, as Ethereum (ETH) rallied, miners on the network earned more than $500,000 in just one hour.

Ethereum currently sits at a 2020 high of $486, having gained 10% yesterday. The surge in network activity is believed to be tied to the launch of Sushiswap, a fork of Uniswap that reached $1 billion in total value locked in less than 24 hours.

The news sounds good for Ethereum miners, as their revenues are increasing through higher fees and more transactions. In fact, Ethereum’s network hashrate has continued to grow, recently reaching a 20-month high, despite recent controversy surrounding a proposal to reduce block rewards by 75%.

However, it points to a growing question about the sustainability of Ethereum in both the short and long term. While DeFi appears to be leading to a new bull run for Ethereum, it also appears to be the main cause of its technical issues.

As the decentralized finance sector continues to push activity beyond the limits of the network, congestion on the network is leading to a large number of unconfirmed transactions, longer wait times, and higher fees as users compete to confirm transactions faster. This problem has also made some smart contracts almost unusable, which is an extremely critical issue for the future of Ethereum as a smart contract platform.

While Tether (USDT) has been the largest gas consumer on the network, decentralized exchange and liquidity protocol Uniswap recently surpassed Tether as the smart contract using the most gas.

Uniswap’s daily trading volume exceeded Coinbase, which also caused a sensation in the media, showing that DeFi’s influence in the digital asset field is becoming very large.

Transaction costs remain a major issue across the crypto market

Ethereum has always had issues with high fees and congestion. Recently, the Ethereum network increased the maximum gas limit per block from 10 million to 12.5 million, but it’s not the only network that has seen fees rise.

Bitcoin transaction fees have also risen significantly from less than $1 in July to $3.53 at the time of writing. The Bitcoin network peaked on August 6 at an average of $6.47 per transaction.

However, for transactions involving large sums of money, these fees are more or less inconsequential, such as one user paying less than $5 to transfer over $1 billion worth of Bitcoin. However, when it comes to small payments, current fees (on both Ethereum and Bitcoin) are simply unaffordable. The nature of transaction fees has become one of the main arguments for classifying Bitcoin as "digital gold" rather than a currency.

While transaction fees have long been an issue for Ethereum, there are some solutions in play, including an old Ethereum Improvement Proposal, EIP 1559, which is now being tested in Filecoin, a decentralized file-sharing and payment protocol. The proposal was successful in improving that platform’s fee structure and could theoretically be applied to Ethereum as well.

Ethereum 2.0 and Layer 2 Selection

At the same time, some solutions such as EPI 1559 and even the upcoming Ethereum 2.0. The upgrade is still under development and testing, and there are currently layer 2 solutions that can help solve Ethereum's fee problem.

Several layer 2 solutions offer an option for simple payments on the network, many of which are already live. The most notable is the OMG Network, which recently saw the migration of Tether to allow for cheaper USDT transfers.

OMG Network COO Stephen McNamara explained how OMG can help solve Ethereum’s current fee problem. He told Cointelegraph:

“The OMG Network enables fast, cheap, and secure value transfer for ETH and any ERC-20 token. By moving tokens to the OMG Network, other more experimental and expensive smart contract services can continue to run on Layer 1. When integrated with the OMG Network, transaction fees can be as low as a few cents and verification times can take just seconds, all while maintaining the security of Ethereum.”

Ethereum co-founder Vitalik Buterin also urged the community to take advantage of these solutions. He tweeted:

“To those who responded with ‘gas fees are too high’, my response is ‘well, more people should just accept payments directly via zksync/loopring/OMG’. Seriously, they scaled Simple Payments App to 2500+ TPS, we just need to use it.”