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Ethereum and Bitcoin transaction fees tank amid high network activity and market turbulence

In this post:

  • Ethereum and Bitcoin transaction fees drop to multi-year lows, making transactions more affordable.
  • Layer 2 (L2) solutions on Ethereum are experiencing record-high activity.
  • Bitcoin transaction fees have also decreased, reaching $1.94 per transaction on June 24

Ethereum and Bitcoin are experiencing a notable decline in transaction fees, reaching multi-month lows despite high network activity.

Also Read: Bitcoin price falls amid US stock market rally, down 10% from June high

This development coincides with one of the most challenging weeks for the broader crypto market in 2024, with Bitcoin falling below $63,000 and many altcoins experiencing double-digit losses.

Ethereumโ€™s gas prices โ€“ the fees required for conducting transactions on the network โ€“ have plunged to levels not seen in years. The average gas price on Ethereum recently stood at just 7.3 Gwei, a dramatic decrease from the 98.68 Gwei recorded on March 5. This significant drop makes the network considerably more affordable for developers and users.

Source: Ychart

The reduction in Ethereum gas fees is particularly noteworthy given the high level of network activity.

Ethereum Layer 2 solutions drive down prices

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 attributed to the increased adoption and efficiency of Layer 2 (L2) solutions.

L2 solutions are designed to enhance Ethereumโ€™s scalability, process transactions off the main Ethereum chain, thereby reducing congestion and costs. The widespread adoption of these protocols highlights their critical role in easing network traffic and lowering gas prices.

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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.

Brian Smocovich

The impact of these efficiency gains is evident in the reduced cost of everyday transactions. For example, performing a swap on Uniswap now costs just $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 โ€œblobโ€ transactions, reduces these fees even further, with a Uniswap swap on Base costing just $0.0016.

However, the dramatic reduction in gas fees has also led to a decrease in Ethereumโ€™s burn rate, which is now at a 12-month low. This has caused Ethereumโ€™s supply to become slightly inflationary, with a growth rate of around 0.56% per year, according to ultrasound.money.

Bitcoin transaction fees hit lowest level since October 2023

Bitcoin is experiencing a similar trend in transaction fees. According to recent data the average Bitcoin transaction fee reached $1.94, its lowest since October 2023. This marks a significant decrease from the fee spikes often seen during periods of high market volatility or price appreciation.

Source: ycharts

Given the historical context, the low fees on the Bitcoin network are exciting. Every major bullish period since 2012 has typically resulted in a corresponding fee increase, except for the 2021 bull run. Bitcoinโ€™s price touched $69,000 during that period, but transaction fees remained relatively low.

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The current low-fee environment for Ethereum and Bitcoin comes when the broader crypto market is experiencing significant turbulence. Bitcoinโ€™s price has fallen below the $63,000 support level, while many altcoins have seen double-digit percentage losses. This market downturn has led to billions in liquidations from leveraged positions, while spot holders have also incurred heavy losses.

Also Read: Crypto market faces severe correction amid token dilution and investor exodus

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).


Cryptopolitan Reporting by Florence Muchai

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Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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