<p>Anyone remotely involved with the world of digital currencies has surely come across the term ‘gas fees’, i.e. the cost an individual has to pay before their crypto transaction can be processed. It is levied as part of almost every crypto-centric function, including asset swaps, payments, minting of NFTs, etc.</p><p>In this regard, it bears mentioning that over the last couple of years, several problems — such as high transaction fees, failed transactions, etc. — have plagued the industry as a whole, particularly the Ethereum network, which is the most widely used smart contract network in the world today. In fact, during a few stretches recently, the average cost of processing transactions within the ecosystem <a href="https://www.gobankingrates.com/investing/crypto/ethereum-gas-fees/" rel="noopener noreferrer nofollow">hovered</a> between $15 and $40, with the metric hitting a record high of $700 back in June 2020.</p><p>And even though the network transitioned to a proof of stake (PoS) consensus mechanism back in September, a move which brought down its energy consumption by over 99% while seeking to make its transaction fee processes more efficient, Ethereum has not been able to contain its high gas rates. This is best <a href="https://dailyhodl.com/currencies/ethereum/" rel="noopener noreferrer nofollow">evidenced</a> by the fact that Ethereum’s gas levies rose by 31.3% during the 30-day period following its merge.</p><h3 id="what-exactly-are-blockchain-transaction-fees">What exactly are blockchain transaction fees?</h3><p>In its most basic sense, blockchain transaction fees refer to the mandatory cost that users of a blockchain network must bear in order to facilitate their transactions. These fees are paid to the miners who verify and validate the transactions, and they are an essential part of how blockchain networks maintain their security and decentralization. To elaborate, when a user wants to send a transaction on a blockchain network, they must include a fee with their transaction.</p><p>This fee incentivizes miners to include the transaction in the next block they mine. The higher the fee, the more likely a miner is to include the transaction in their block. As a result, users must compete with each other to have their transactions included in the next block by offering higher and higher fees. This competition can lead to insane gas rates, especially on networks with high demand, such as Ethereum.</p><p>Transaction fees are an important part of how blockchain networks function, as they help to ensure the security and decentralization of the network. However, high transaction fees can make it difficult for individuals to use the network for small, everyday transactions and can limit the growth and adoption of blockchain-based applications.</p><h3 id="new-blockchain-solutions-are-paving-the-way-for-a-cost-effective-future">New blockchain solutions are paving the way for a cost-effective future.</h3><p>While Ethereum’s native transaction charges do not appear to be coming down anytime soon, the aforementioned merge event seems to have set the stage for the network to become more transaction efficient. This is thanks to its use of a mechanism called ‘sharding’ which allows for the partitioning of the blockchain into compact parts. Sharding not only helps increase Ethereum’s scalability but also allows for potentially higher transaction speeds and faster validation during peak periods.</p><p>In this regard, projects like ParallelChain Lab have taken inspiration from Ethereum’s existing transaction fee mechanism and made it even more efficient. For example, users of the project can save on gas fees by outlining the maximum transaction price they are willing to pay (to execute their transaction) alongside the tip that they would like to give validators.</p><p>Their transaction fees are then devised based on these two data inputs, with fees that are lower than the base fee at the time of processing being rejected (due to the amount being insufficient). In contrast, eligible requests are queued up and processed depending on their associated transaction fees.</p><p>Moreover, ParallelChain comes up with a base fee rate by adjusting prices in real-time, depending on the size of the last block. Any variance in this figure (i.e. an increase or decrease) is factored into the equation relative to the distance from the target block size, which is similar to how the Ethereum fee mechanism works as well.</p><p>Lastly, while the Ethereum network burns its native transaction costs, ParallelChain uses these funds to optimize its ecosystem by incentivizing additional operators to become a part of the platform. To elaborate, a big chunk of the burned fees are given to validators and stakers that are helping secure the network, while the remaining amount is funneled back into ParallelChain’s coffers to initiate various network improvements.</p><h3 id="looking-ahead">Looking ahead</h3><p>As people across the globe continue to make use of various decentralized technologies, it stands to reason that for blockchain tech to become more widely adopted the issue of rising gas fees will need to be dealt with more sustainably. In this regard, projects like ParallelChain are leading the way, with the platform having wrapped up its third testnet round, thus inching a step closer to its eventual launch. Therefore, it will be interesting to see how this space evolves from here on out.</p>

A Look at Blockchain’s Transaction Fees Conundrum and What Some Projects Are Doing To Solve It

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