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Home » Why Are Fees on Ethereum Dropping?
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Why Are Fees on Ethereum Dropping?

Abdulmujeeb OwolabiBy Abdulmujeeb OwolabiUpdated:February 16, 2022No Comments3 Mins Read
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A lot less money is being spent on simple ether and ERC-20 wallet transfers than in December and January.

Why Are Fees on Ethereum Dropping?

In the meantime, ether (ETH) has lost 36% of its value since November. This is because of the recent market crash. Even though transaction fees, decentralized finance trading volume, and borrowing rates across lenders have been important, it has been the network activity that has been the most important.

A lot less money is being spent on simple ether and ERC-20 wallet transfers than in December and January. If you want to transfer money from one wallet to another, this is a more complicated process. Here, a person is swapping one asset for another and paying just 0.0064 ETH ($20.04) in transaction fees. In March of last year, a different person spent 0.04 ETH ($125.18) on a similar transaction. This transaction was more than six times more expensive than the one on February 15.

The comparison is, of course, not apples to apples, because contracts become more gas efficient over time and there are different levels of activity during the day. However, studying the comparison can show how much transaction costs have gone down.

How EIP 1559 has affected fees on Ethereum

As of early August 2021, EIP 1559 was turned on. Every block now has a set base fee in ether that must be paid to be included in a block. They can only be changed by 12.5 percent up or down after each block, depending on whether the gas target set by Ethereum core developers was met or not. This is to keep the base fees from changing too much.

Every time a transaction is made, the base fee is sent to a burn address. This is a way for the native asset, ether, to act almost like gas in a car. There are a lot of reasons why this is important. First, the burn counteracts inflation caused by block rewards and helps keep both the Ethereum network and its native asset alive.

It has done this to protect itself from having transaction fees go through the roof in a short amount of time because of non-fungible token (NFT) mints or token launches. Because of that, transaction fees can rise for weeks or even months at a time when there isn’t a lot of activity. Read more: Introduction to Cryptocurrency 

The charts below show that there has been a lot less volatility this year. They also show that gas prices have been dropping month over month and that daily transactions have been going down since November of last year. This has a bigger impact on the network because fees aren’t burned as quickly and ether prices go up, which has only happened two other times since EIP 1559 was put in place.

Why Are Fees on Ethereum Dropping?
(Etherscan)
Why Are Fees on Ethereum Dropping?
(Etherscan)

Falling transaction fees are good for users, but they may not be good for the network as a whole. Read also; How Much to Invest in Cryptocurrency, According to 5 Experts

Network activity will always be linked to the price of crypto assets. But if there is a strong connection between the two, it could mean that most Ethereum applications are focused on asset speculation rather than real-world use, through decentralized products like insurance, gaming, payments, and more.

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Abdulmujeeb Owolabi
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Abdulmujeeb Owolabi writes SEO articles for businesses that want to see their Google search rankings surge. With his 5 years of SEO expertise in writing tech, crypto, and finance blogs, you can reach him on Owolabi@techloaded247.com His articles focused on balancing information with SEO needs–but never at the expense of providing an entertaining read.

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