High network fees: pains, explanations, and solutions

Network fees are at the heart of our customers’ experience. Even if we do not earn anything from fees, we need to provide you with the best “fee experience”.

The past few weeks have been painful for our customers, but also for the industry at large. Network fees have reached ridiculous levels making it uneconomical to perform virtually any type of transaction on Ethereum and even on Bitcoin.

A single transaction on Ethereum and Bitcoin would cost 10 USD (many times even more) and using any decentralized app (or Dapp) that makes use of a smart contract  could easily add up to 30-40 USD of fees per transaction.

The good news is that we’ve returned to a more acceptable level and using Bitcoin or Ethereum seems to be possible again. The bad news is that fees are still fairly high.

Below we explain what happened to ETH and BTC fees in the past few months, and how we plan to tackle such periods in the future.

What network fees are and are not

Before we dive in, there are a few prerequisites about fees that we’d like to cover.

We know many of you discovered bitcoin and cryptocurrencies recently, and learning about the crypto ecosystem can feel like learning a new language. In particular after years of using “banking” services, where sending a transaction means paying a fee to a bank.

But decentralized crypto is different. Unlike centralized services, ZenGo does not charge any fee for sending or receiving transactions. However, when sending a crypto transaction of any kind, you must pay a network fee. 

Network fees are not fees charged by ZenGo. 

They are fees paid to a network of miners who are in charge of processing and validating your transactions on the blockchain. Those fees are the reward for their work. Based on the value of the fee, your transaction is validated and prioritized, affecting the speed of a transaction. In simple terms: the less you pay, the less likely you are to have your transaction processed quickly (or at all).

Network fees are not calculated as a percentage of the amount you send. This is not how blockchains work. It may sound reasonable, but fees in blockchains are nearly the same, regardless of the amount. Sending 1 USD of Bitcoin or 1 million USD or 100 million USD of Bitcoin would cost about the same. Network fees are the result of a complex calculation that allows transactions to be processed on the blockchain. 

Those fees are always calculated and denominated in cryptocurrency, although we show them in national currency for your convenience. When looking at fees you should always first look at the crypto value. This explains why the same fee may vary in USD price because it depends on the value of the cryptocurrency you are using.

Also, network fees are dynamic and change all the time based on the number of transactions processed simultaneously (among other factors). The same transaction could cost $0.10 or $50 in network fees, depending on how busy the network is when you send it.

And finally: network fees are very different in cost and calculation based on the blockchain you are using. Sending $1 of ETH and $1 of BTC would probably have different fees.

Why did network fees skyrocket?

In the past weeks, there has been a frenzy around a new generation of investment and trading services in the Ethereum ecosystem (also called DeFi) which lead to a massive spike in the number of transactions. By doing so, the Ethereum network has become saturated and the network fees have become very expensive, hurting every service in and outside of ZenGo.

Every service in ZenGo has become significantly more expensive than usual. Our Savings feature, using on Compound, became literally unusable for small deposits and many felt “trapped” because the withdrawal fees became unacceptable. We also had to raise the minimum swap value to limit users from swapping a low amount with unreasonable fees. We are very sorry for the inconvenience which, as we explained above, was beyond our control.

At some point, millions of dollars in fees were spent per day. A single transaction could take a day to arrive, sometimes more. Insane. 

That not only affected Ethereum fees; it also affected Bitcoin fees. Why? Because there was a significant amount of BTC that was deposited as collateral and “locked” in the Ethereum blockchain to provide additional liquidity to these services. This has caused a spike in Bitcoin network fees.

Unconfirmed transactions in Bitcoin’s Mempool over the past few weeks.
Source: https://jochen-hoenicke.de/queue/#0,24h

Are things back to normal?

In the last couple of weeks, the situation has cooled off a bit. Many of those DeFi tokens and services have lost steam and the activity has significantly decreased.

Fees have decreased back to acceptable levels

Fees reached levels that are more reasonable (as we speak, ETH fees are around $0.50 per transaction), and many of you may find the services that we provide to be usable again (including sending, investing in a savings account or trading between crypto assets in ZenGo).  

Some of you may still find the fees too high and obviously everyone would prefer fees to be as close to zero as possible. We (and all other wallets) would love for that to happen. It would be a win-win situation for both wallets and customers.

That said, network fees are dynamic and might change pretty fast.

What can you do to protect yourself from high fees today?

There are a few things you can do to mitigate this situation. Here are a few tips:

  1. Wait for better times for non-urgent transactions.
  2. Take Extra care with Savings: right now, if you plan to use Savings with low amounts or for short periods of time, avoid it. The fees are just not worth it. It pains us to say that but that’s the way it is. This is a temporary situation that will hopefully be resolved soon.
  3. Monitor the fee so you can find the best moment to operate. We built a tool that tracks Ethereum fees, and there is this great one for Bitcoin which was one of our inspirations to build the Ethereum tool. You may find that certain hours of the day are “cheaper” to send than others. Spot them and transact when it’s cheap.
  4. Always verify your transaction fee before confirming your orders.
  5. Use “cheaper” blockchains if you need to move funds around. For example, Tezos and Terra (both supported by ZenGo) are significantly cheaper right now.
  6. Earn free crypto by inviting friends which is a great way to add some pocket money to pay for your fees.
  7. Be extra patient. Blockchain transactions are not instant. Being aware of that is a good first step. The less you are willing to pay, the more time it will take for the transaction to go through. Cheaper does not always mean “better”.
  8. Trace your transactions on blockchain explorers directly from ZenGo. Tap on any pending transaction in ZenGo to find its current status.
  9. Make sure your push notifications are on. This is how we notify you when a transaction arrives without having to worry about it. 
  10. Contact our 24/7 customer service with any problems you may have. We answer fast and we will help you.
Fees are much lower on alternative blockchains, such as TerraUSD.

What is ZenGo going to do about it?

We are well aware that a good “fee experience” is one of the important pillars of a great wallet. While we wish that fees will never increase in the future, history teaches us that they very likely will spike again. To mitigate similar events in the future, we are working on several improvements. 

For those thinking we should just refactor our code to pay the lowest possible fees, well it’s not that simple. Paying very low fees could mean that your transaction would arrive beyond reasonable delays and sometimes never at all.

But we definitely can do better and have set that as one of our highest priorities for the upcoming months.

The ZenGo team is currently working on:

  1. Making it clearer and easier to understand what fees you pay, before you pay them, and why, particularly during spike periods.
  2. Identifying situations in which you are about to pay abnormally high fees and helping you make better decisions.
  3. Optimizing all our algorithms to find the best and cheapest fee model.
  4. Providing new tools so you can better control the fees you pay.
  5. Supporting additional blockchains better equipped to deal with heavy loads and providing a way to conveniently access or trade to those assets.
  6. Implementing solutions that help alleviate the load and substantially reduce high fees.

You will notice these improvements in the weeks and months ahead, and as usual, we are open to new ideas and suggestions -> contact@zengo.com