Gas fees (Transaction Fees) that come with using Bitcoin and Ethereum blockchains are on the rapid decline, as evidenced by a 95% reduction in average transaction fees over the past couple of months.
Fees that are paid to miners who process transactions on a typical proof-of-work (PoW) blockchain are also declining. The size of the fee depends on two factors which are the size of the transaction in bytes and how many transactions a coin has gone through in the past. Supply and demand for space also dictate the size of a transaction fee since blockchains have limited capacity.
Both the Bitcoin and Ethereum network saw their gas fees skyrocket to all-time highs in April and May of 2021, coinciding with their rising coin valuations and price peaks.
Bitcoin’s blockchain gas fee hit $62.77 on April 24th, a figure that exceeded the all-time high of $55, which was last seen in December 2017. This week, fees have fallen as low as $4.38 which marks a 93% decline and that sent Bitcoin’s average fee back to levels not seen since December 2020, before 2021’s market pump.
The same goes for the Ethereum blockchain, where users complained bitterly about the tremendous gas fees that sent customers to other smart contract platforms such as the Binance Smart Chain (BSC). It saw its average transaction fees rise to as high as $69.92 on May 12. That was another all-time high for the network which was undoubtedly fueled in part by the level of activity that accompanied the launch of decentralized finance platforms on the network and the Uniswap exchange, which has long been the biggest consumer of resources on Ethereum.
This week, we saw the Ethereum network average gas fees as low as $3.44, a figure not seen since the first day of January 2021. This translates to a 95% reduction. Gas fees on both blockchains tend to jump whenever there is a sudden increase in the native token’s price or when a new application that increases network usage launches or gets demand from advertised promotions.
However, the transaction count on both Bitcoin and Ethereum network is also on a decline. Between January and June, the daily number of Bitcoin transactions fell from around 400,000 to just 175,000. Likewise, the number of daily Ethereum transactions fell from 1.6 million to 1 million between May and June alone, marking a 37.5% drop.
Why this matters
Investors who were looking to transact on these networks but did not due to the high gas fees can now do so as the network seems to be back to normalcy. The Ethereum platform especially gives investors an opportunity to earn passive income on their cryptocurrencies through DeFi (Decentralized Finance) platforms such as Uniswap (UNI).
Bitcoin is currently on a sharp rise after El Salvador passed the crypto asset into law as a legal tender. It is trading at $36,400, currently up 15% for the day. Ether is trading at $2,555, up approximately 10% for the day, as of the time of writing this report.