s the price of Ethereum continues to rise, into the upper $1200 range and beyond. There are those who aren’t fully convinced that Ethereum will continue to explode in the way that Bitcoin has.
Ethereum has seen a wonderful bull run in the past week and overall market optimism can be attributed to this as well as more and more investors seeking to diversify and cycle profits back into other cryptocurrencies.
ETH is the second-largest cryptocurrency by market cap and has skyrocketed over the last 12 months, over 600%. So what is holding this seemingly perfect altcoin back from catching up with or overtaking Bitcoin? The high gas fees. Ethereum Gas is the underlying water that feeds the entire ecosystem.
Gas fees are a critical part of how the Ethereum network operates. They refer to a measurement unit that relates to how much computing power is needed to perform certain network tasks. Gwei is used to pay for transactions on the Ethereum Blockchain.
1 Gwei is equal to .0000000001 ETH but the price of Gwei needed to obtain Ethereum changes as the price of Ethereum changes. The higher the price of ETH the higher the price of Gas needed and the more users pay in gas costs.
Wallet software will usually automatically set the gas price for sending Ethereum transactions. The transactions are then sent to the mempool for miners to obtain in the upcoming blocks. Miners will receive the fees as they facilitate transactions inside the block therefore incentivizing higher priced transactions.
The gas market is akin to an auction type market where users up the gas price to make sure that their transactions are picked up by a miner and executed promptly.
When there is a large demand for Ethereum, users can bid up the gas price hoping to be included in the next block. Ethereum is very reliant on the hashrate of their miners. The more miners, the more hashrate which means a faster and more secure system.
Computation is very expensive right now for Ethereum and that makes it hard to send or receive microtransactions. Many DeFi apps are experiencing somewhat of a boom right now and as a result, more people are entering the Cryptocurrency space. This means more people are able to enter and buy ETH with apps that suit their needs.
It also means that sending and receiving small amounts of Ethereum is not very profitable right now. This could potentially limit the amount of capital flowing into the market because people are not able to liquidate these funds via microtransactions as easily and cheaply as some other coins.
Ethereum gas fees could be seen as the caveat holding this currency back from untethered expansion as we have seen from other currencies in this recent boom.
