Flashbots – One Reason Why Ethereum Gas Fee Is Falling

Ethereum is a token that often gets misspelled. It also gets confused with an element on the periodic table.

Of course, to those in the crypto world, we know it’s something entirely different. From Ethereum, we have smart contracts, an innovation that opened infinite possibilities and built on the fundamental work of Bitcoin.

The Value of Ethereum

In fact, the depth of innovation due to Ethereum is one of the reasons why crypto is attractive even for critics. Fans agitating for better financial inclusion and elimination of mediation costs can’t have enough #DeFi. Art lovers and creatives find inspiration in their own Mona Lisa, not in the Louvre but in the safe, warm abodes, churning out masterpieces and finding true liberation in NFTs.

However, it is not always pomp and color in Ethereum. Despite the glitter, Gas fees can be a nightmare for active #cryptocurrency users. Analysts pin fluctuating Gas fees on Ethereum’s inability to scale—but this is the cost blockchain adherents currently must pay for adoption.

To counter this, Ethereum developers, spearheaded by Vitalik Buterin, call for scaling options like Layer-2 and gradual migration to Ethereum 2.0—a new era marked by Proof-of-Stake. And now – Flashbots.

What are Flashbots?

Flashbots are a research and development organization formed specifically to mitigate the subsequential effects of Miner-extractable Value (MEV) in smart contracting platforms. This effect is mainly in Ethereum— and it’s being lauded as a true game-changer.

As a side note, a MEV happens when Ethereum miners arbitrarily reorder, include, or exclude a given transaction in a block they mine to profit. MEV can occur in the form of front-running.

You may be wondering how, and first why is this a game-changer?

To grasp this, you must note that Ethereum depends on miners, and miners, as some analysts point out, have been maliciously “attacking” Ethereum, lining their pockets with more profits by hiking up Gas fees. Subsequently, at the height of the Dogecoin meme era of April and early May, it was almost unfeasible to transact using Ethereum. Primarily because of network congestion and the fact that Gas fees averaged $65.

A combination of Layer-2 adoption (Arbitrum and soon Optimism), reduction on Ethereum transaction count, and Flashbots integration by most mining pools was why Gas fees have now fallen to around $5 (as well as less activity on the blockchain).

How Flashbots Work

Flashbots work at the core of the Ethereum blockchain. Accordingly, finding solutions within the network’s code to relieve and gradually alleviate one of the main pain points is fees.

The creators of this ingenious solution said most mining pools, contributing over 58 percent of Ethereum hash rate, are now mining on Flashbots. Flashbots creates these communication channels between traders and miners, effectively taking bidding off-chain. In the current architecture, bidding on Gas takes place on-chain, opening up channels of front-running—a problem that Flashbots fixes.

By taking Gas bidding off-chain, Flashbots helps drive transaction fees down since Ethereum miners are effectively incentivized to bundle transactions before confirming them on-chain without necessarily inflating Gas fees.

Coinciding with the drop of Gas fees, Flashbots creators observed the increasing number of searchers with plans of communication with miners for their transactions to be bundled and mined off-chain.

Flashbots creators pulled this off by fusing a modified Geth client fork (MEV-Geth) and a transaction bundle relayer (MEV-Relay). This births a secure communication channel where traders (searchers) can send Flashbots bundle transaction requests to approved miners. This request is sealed with a tip and is made off-chain, as aforementioned.

Depending on the amount of tip included by the trader/searcher, the MEV-Geth selects the most profitable bundle and has them in a block.

You may be asking yourself, what happens with those transactions which aren’t selected due to low tips? Well, since requests are made off-chain, there won’t be an impact on Gas fees even on failed transactions. Done at scale, Ethereum Gas fees will remain low as participants profit from MEV strategies offered by Flashbots.

Thus far, Flashbots have extracted over $749 million since Jan 1, 2021. Out of this, $49 million was added to the Flashbots ecosystem in the last 30 days alone. The total value extracted is rising—and moving inversely with Gas fees—indicates wider #crypto adoption.

All in all, it could indicate a catalyst for Ethereum #pricegrowth.

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