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Home»Ethereum»Here’s Why Ethereum’s Rapidly Dropping Fees Could Be a Problem
Ethereum

Here’s Why Ethereum’s Rapidly Dropping Fees Could Be a Problem

August 13, 2024No Comments3 Mins Read
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Ethereum gas fees for transactions have dropped massively amid a wider decline in the price of the cryptocurrency. According to recent data, the base fee paid by users has fallen to a surprisingly low level of 0.82 Gwei, a clear indication of reduced activity on the Ethereum network.

Ethereum Base Fees Drop Rapidly

Data According to Ultra Sound Money, Ethereum’s base gas fee has been on a steady decline throughout the past week, eventually hitting a multi-year low of 0.82 Gwei on Saturday, August 11. This significant drop in gas fees can be attributed to a decrease in large transactions on the Ethereum network. data from IntoTheBlock reports a sharp drop in the number of transactions over $100,000, with the numbers dropping from 16,990 transactions on Monday to just 2,620 transactions on Saturday.

The drop in gas fees has also led to a decrease in the number of ETH burned. This is based on the idea that the base fees paid by users are burned and removed from circulation in order to create deflationary pressure on the ETH supply. Data from Ultra Sound Money shows that only 3,698 ETH tokens were burned in the last seven days, while 18,065 new ETH tokens were issued during the same period. This imbalance between burned tokens and newly issued tokens has led to a net increase in the circulating supply of Ethereum, which contradicts the expected deflationary trend result.

Ethereum Fees
Source: Ultrasound Money

Why are gas costs important?

THE relationship between gas costsNetwork activity and the overall supply of ETH are key factors that traders and users monitor from time to time. Gas fees on Ethereum are fundamentally tied to the level of activity on the network. As the number of transactions increases, so does the demand placed on validators to process and validate these transactions.

When the network is congested by a high volume of transactions While waiting to be added to blocks, users must pay higher gas fees if they want their transactions to be processed quickly. By doing so, they can ensure that their transactions are validated and completed in the next block.

Historically, higher gas fees, while unfavorable to users, have been seen as a reflection of increased interest and activity on Ethereum. Such periods of high network demand often correlate with bullish market action. At its peak, users paid an average daily gas price of $196.638 in May 2022.

In periods of low activity, as what is currently observedReduced demand always leads to lower gas fees. While lower gas fees can be beneficial for users looking to save on transaction costs, they also reflect a period of gloomy activity on the network. At the time of writing, Ethereum is trading at $2,585 and has fallen 3.58% in the last 24 hours.

Ethereum Price Chart from Tradingview.com
ETH price breaks above $2,600 resistance | Source: ETHUSDT on Tradingview.com

Featured image created with Dall.E, chart by Tradingview.com



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