War on Gas

War on Gas

The main issue haunting the Ethereum network is gas prices for each transaction. High gas prices caused many problems and bizarre situations like Kings of Leon’s NFT were cheaper than a transaction cost when the release of their NFT. It's a massive problem for Ethereum making the applications more expensive to use for every user. That’s also one reason why EIP-1559 is so important alongside “The Docking” of Ethereum.

Recently, the gas has dropped significantly, making it nearly the lowest compared to previous months, and there are two reasons behind the drop.

Silent predators

The first reason for the recent drop lies in Ethereum’s pool of pending transactions: the mempool.

Mempool is the place where all pending transactions sit until miner decided to include them into the block. For the most time, transactions with the highest gas prices are included first as the miners get the gas price for including them into the block.

Some have found a way to exploit this miners behavior. Front-running works like this: Transaction A is broadcasted with a higher gas price than an already pending transaction B so that A gets mined before B.

It can be taken even further. By carefully monitoring broadcasted transactions in the mempool, an arbitrage bot could detect a big transaction to one of AMMs and try to sandwich them between two of theirs transactions. To ensure that the desired transactions happen in the right order, arbitrage bots set very high gas prices to make sure they will be included first in the block, making the arbitrage possible.

This is the main reason behind high gas prices. But one protocol played a significant role in the gas price drop in April and May.

Arbitrage Defense System

Flashbots is a research and development organization formed to mitigate the negative externalities and existential risks posed by MEV. They provide a way to bundle transactions together and send them as atomic operations. Any miner or miner-pool can run MEV-geth and accept such bundles. There is an excellent video from The Defiant that dives into this topic.

Flashbots created an interesting way to detect arbitrage bidding wars and bundle such transactions together to be executed using MEV-geth. Bundling prevents bidding wars with other bots and increasing the chances of completing transactions successfully. By avoiding these gas wars, MEV drops, and gas prices on the Ethereum network do so as well.

Block size increase

This is the seventh time in Ethereum’s history that miners have voted to increase the gas limit as a temporary solution to rising network fees. The size has been increased from 12.5M to 15M.

The gas limit is a way to tell miners how many operations can be included in a single block. Gas limit cannot be increased indefinitely. There are potential risks when it comes to raising Ethereum’s gas limit. Larger blocks require more energy to process and finalize on the part of miners and can increase the likelihood of chain splits and orphaned blocks.

With the recent Berlin hard fork and many optimizations it brought, Vitalik suggested one of the Reddit posts, and it is now safe to increase block size.

Cheaper future

With current progress on different fronts of reducing the gas costs, like EIP-1559, L2 solutions or the biggest one, “The Docking” of Ethereum, we can have regular gas prices and don’t worry about the cost of the transaction and enjoy the wonders of Ethereum that it offers.