Previously, the cryptocurrency exchange had paid Ethereum fees on behalf of its customers. The change in fee policy comes into effect from Thursday, 17 Sept.
Rising Gas Prices Prompt Coinbase Policy Change
Coinbase announced the change via Twitter. In a thread, it stated that increased usage on the Ethereum blockchain had caused it to, “pass along network fees directly to our customers.”
Starting today, Coinbase Pro will pass along network fees directly to our customers. These fees (sometimes referred to as “gas fees” on the Eth blockchain) are paid directly to crypto miners that process transactions and secure the respective network. https://t.co/hcuPoejwCz
— Coinbase Pro (@CoinbasePro) September 17, 2020
Coinbase also reminded users that transfers between Coinbase wallets would remain free. It added that customers could also hold funds at the exchange free of charge.
Although allowing Coinbase custody of funds would mean users avoid paying gas fees, it would also expose them to the risks associated with centralized storage, thus removing the permissionless nature of blockchains.
Ethgasstation.info shows that the decentralized exchange Uniswap is currently the largest consumer of gas on the network. Transactions involving the platform accounted for $12.7 million in fees over the last 30 days alone.
Uniswap’s popularity likely not only steals customers from centralized exchanges like Coinbase Pro but also drives up gas prices. Given that Coinbase Pro was previously paying transaction fees on behalf of its users, this will likely have had an impact on the company’s profitability.
Gas prices on Sept. 17 reportedly ranged from between $3.93 and $11.27, making smaller transactions impractical.
Community Not Impressed with Coinbase Announcement
The crypto industry was quick to scorn Coinbase for the policy pivot. Responses claimed that the change would cause customers to look for new platforms elsewhere.
Others drew attention to the rate at which Coinbase levies other fees. One respondent made the case that the exchange should pay transaction costs, given the high trading fees on the platform.
Do you guys want customers? Cause this is a bad way to attract new ones.
— BullChain (@BullChain) September 17, 2020
Some chose to criticize Ethereum itself, rather than Coinbase, citing Ethereum’s scaling issues. With limited block space, ETH send prices increase when many transactions are waiting.
These scaling issues continue to be a hot topic as the crypto community anticipates Ethereum’s next major upgrade, Ethereum 2.0.
In its current form, Ethereum gas fees suggest that the network may not be capable of efficiently supporting the growth of DeFi. Competitors like Binance’s Smart Chain intend to support Ethereum-compatible applications without excessive transaction costs.
Users put off by heightened Ethereum transaction costs may ultimately switch to more centralized solutions or other networks supporting decentralized applications.