Ethereum and Bitcoin are witnessing a significant drop in transaction fees, hitting multi-month lows despite sustained high network activity. This comes during one of the most challenging weeks for the broader crypto market in 2024, with Bitcoin falling below $63,000 and many altcoins suffering double-digit losses.
Ethereum’s gas prices, the fees required for transactions on the network, have plummeted to levels not seen in years. The average gas price on Ethereum recently fell to 7.3 Gwei, a dramatic decrease from 98.68 Gwei recorded on March 5. This reduction makes the network much more affordable for developers and users.
The decline in Ethereum gas fees is particularly notable given the high level of network activity. Data from L2Beat shows that on June 21, Ethereum Layer 1 and Layer 2 protocols recorded an average of 299 transactions per second. This paradox of low fees amid high activity is primarily due to the increased adoption and efficiency of Layer 2 (L2) solutions.
L2 solutions enhance Ethereum’s scalability by processing transactions off the main Ethereum chain, reducing congestion and costs. Their widespread adoption underscores their critical role in easing network traffic and lowering gas prices.
According to Pistachio Fi founder Brian Smocovich, “The L1 gas market is now more efficient because most volume is on L2s, L2 -> L1 settlement is 100x cheaper than pre-4844, and we have the gas market efficiencies of EIP-1559.”
The impact of these efficiency gains is evident in the reduced cost of everyday transactions. For instance, a swap on Uniswap now costs $1.06, trading an NFT on Seaport costs $1.49, and transferring ETH on-chain costs only $0.23. Using L2 networks like Base, which incorporates “blob” transactions, further reduces these fees, with a Uniswap swap on Base costing just $0.0016.
However, the significant reduction in gas fees has also led to a decrease in Ethereum’s burn rate, now at a 12-month low. This has caused Ethereum’s supply to become slightly inflationary, with a growth rate of around 0.56% per year, according to ultrasound.money.
Bitcoin is experiencing a similar trend in transaction fees. Recent data shows the average Bitcoin transaction fee has dropped to $1.94, the lowest since October 2023. This marks a significant decrease from the fee spikes often seen during periods of high market volatility or price appreciation.
Historically, low fees on the Bitcoin network are noteworthy. Major bullish periods since 2012 have typically resulted in increased fees, except for the 2021 bull run when Bitcoin’s price touched $69,000, but transaction fees remained relatively low.
The current low-fee environment for Ethereum and Bitcoin coincides with a broader market experiencing significant turbulence. Bitcoin’s price has fallen below the $63,000 support level, and many altcoins have seen substantial losses. This market downturn has led to billions in liquidations from leveraged positions, while spot holders have also incurred heavy losses.
Despite the market turmoil, the low transaction fees on both networks represent a silver lining for users and developers. Lower fees make these blockchain networks more accessible and cost-effective for various applications, from decentralized finance (DeFi) to non-fungible tokens (NFTs).