Following a month of all-time highs in January, transaction fees on the Ethereum (ETH) blockchain have just declined dramatically. Let’s look at the several causes that might explain why they’ve been at their lowest for 6 months.
Lower fees on the Ethereum blockchain
Since the adoption of EIP1559, the value of ether burnt has surpassed $5 billion, i.e. more than 1.9 million ETH. Simultaneously, Ethereum network costs fell to a 6-month low. Indeed, they have reverted to the levels seen at the end of August, namely approximately $5 on average for a transaction, a decline of over 80% since January.
It should be noted that the cost of a transaction is affected by a number of variables. First, the price of gas in Gwei, followed by the quantity required. This is why, for example, transferring coins between two addresses is less expensive than stacking LP Tokens in a smart contract, because the transaction consumes less gas.
A Gwei is a fraction of ether, namely 10-9, or 0.000,000,001 ETH. As a result, the price of an ETH is also considered when calculating the cost of a transaction.
As a result, we may conclude that the network’s capacity is not the sole factor influencing transaction prices. The status of the market as represented by the price of ETH, as well as the types of activities carried out by operators, must also be examined.
What is causing the decrease in Ethereum fees?
One way to address this topic quickly is to explain that this is due to the introduction of several alternative blockchains that are less expensive than Ethereum. Even if that is somewhat correct, reducing the conclusion to that would be incorrect and reductive.
The legendary “Mainnet’s” dominance of decentralized finance (DeFi) capital practically declined from 97 percent to roughly 70 percent in the first half of 2021. It thereafter lost a more gradual percentage of the market, eventually reaching 55% today. However, capitalisation has risen dramatically, from 17 billion on January 1, 2021 to 111 billion now. It should also be noted that because institutions have more resources, the problem of transaction fees impacts them less.
Since its high on November 8, ETH has dropped 45 percent of its value. The price plot contains convergences with other blockchain data, although the proportions and relationships must be qualified.
