Why Ethereum Gas Fees Have Fallen to Their Lowest Level Since 2020 - Unchained (2024)
The low price of transacting is a result of the flight of activity away from Ethereum’s base layer to its layer 2 networks, particularly following the Dencun upgrade that occurred in March.
Average gas prices on Ethereum have decreased about 92% since Ethereum's Dencun upgrade.
The average cost of a transaction on Ethereum is at its lowest level since Jan. 2020 (one gwei represents one-billionth of one ether and is the unit of ETH used to measure gas prices). The decline reflects the movement of activity from Ethereum’s base layer to its expansive array of Layer 2 solutions.
Moreover, the release of the Dencun upgrade, which significantly reduced fees for those layer 2 networks, has only intensified this trend of lower transaction costs. Gas prices on Ethereum have decreased about 92% from about 63 gwei on March 12, the day before the upgrade, to around 5 gwei at presstime, data from blockchain explorer Etherscan and analytics investment platform Ycharts shows.
According to layer 2 watchdog platform L2Beat, the number of active and upcoming L2 projects collectively stands at 95. Over the past several months, users have significantly increased the amount of crypto assets they’ve bridged over to various layer 2 scaling rollups. And of the L2s, the top ones by total value locked—namely, Arbitrum, Optimism, and Base – have seen a spike in active daily addresses, signs of increasing user activity.
“We can certainly see a trend upwards on EVM compatible chains of daily active addresses, which means users are going to cheaper alternatives. Looking at bridge data also confirms this, as bridge activity across Layer 2s has increased from ~$170mn per week to ~$300mn per week,” Andrew Van Aken, a data scientist at blockchain analytics firm Artemis, said in a Telegram message to Unchained.
Additionally, Ethereum has seen over $3 billion in net outflows of ETH over the past three months, per Artemis, with the majority of the flows going to L2s such as Arbitrum, zkSync, Base, Starknet, and Optimism.
The decrease in Ethereum’s transaction costs is “a reflection of the constant evolution of blockchain. Initially Ethereum served as the universal layer for all apps, from decentralized exchanges, to games, to trading memecoins, wrote Justin, CEO of decentralized perpetual futures platform Vest Exchange, in a Telegram message to Unchained. “However, with the advent of Layer 2 solutions and app chains, builders and users (and MEV bots) are realizing that there are tailored ecosystems for specific use cases. In return, we also see Ethereum to be transitioning moreso as a foundational security layer and for supporting more ‘passive’ protocols such as lending and LSTs.”
Ethereum Post-Dencun Upgrade
Dencun, the most recent Ethereum hard fork that brought several codebase changes, went live on mainnet on March 13.
While the number of transactions has remained stable at just over one million per day, the amount of fees paid by end users of Ethereum has plummeted since Dencun, per Artemis.
With less overall transaction fees, the amount of ETH burned has gone down as well. According to Ethereum analytics platform Ultra Sound Money, the amount of ETH issued in the past thirty days is more than the amount of ETH burned, one outcome of the Dencun upgrade.
“The new supply of ETH is now growing at the fastest daily rate since the Merge as fees burned plummeted as a consequence of the Dencun upgrade,” analysts at blockchain analytics firm CryptoQuant wrote in a report published on Wednesday.
The price of ETH reached a multi-year high of $4,000 on the day of Dencun, but has since dropped roughly 25% to around $3,015 at the time of publication, data from CoinGecko shows.
Conversation. Why Ethereum Gas Fees Have Fallen to Their Lowest Level Since 2020 The low price of transacting is a result of the flight of activity away from Ethereum's base layer to its layer 2 networks, particularly following March's Dencun upgrade.
The Dencun upgrade introduced blobs, which allow Layer 2 networks to post data on the Main chain at significantly lower fees. As a result, ETH's burn rate — meant to offset new issuance — has continued falling.
While the number of transactions has remained stable at just over one million per day, the amount of fees paid by end users of Ethereum has plummeted since Dencun, per Artemis. With less overall transaction fees, the amount of ETH burned has gone down as well.
Several key factors influence the fluctuation of GWEI, including network demand, transaction complexity, and blockchain congestion. High demand for Ethereum, often driven by popular decentralized applications (dApps), NFTs, or increased trading on decentralized exchanges (DEXs), can lead to higher gas fees.
The launch of Ethereum (ETH) spot ETFs in the U.S. saw unexpected price declines due to factors like a 'sell-the-news' event, significant outflows from Grayscale Ethereum Trust, long position liquidations, and broader market downturns.
The transition to PoS has significantly reduced new ETH issuance, as validators staking ETH now secure the network instead of PoW miners. This shift, combined with the ongoing burn mechanism introduced in EIP-1559, has put downward pressure on Ethereum's supply growth.
The upgrade will lower gas fees for the growing number of networks built on top of Ethereum that are known as Layer 2 (L2), or “roll-ups.” This is important since gas fees have historically soared whenever there is a surge of activity on the blockchain, making it unviable to use at a large scale.
Ethereum 2.0 introduces key upgrades like the Beacon Chain, The Merge, and sharding to improve network efficiency and reduce transaction costs. Ethereum 2.0 is expected to significantly lower gas fees by increasing the network's capacity to handle transactions.
To reduce Ethereum gas fees, choose off-peak hours for transactions, batch similar transactions, use gas tokens and estimation tools, and explore Layer 2 solutions like Optimism. Whether you're an avid DeFi user, a DApp developer, or simply a casual Ethereum enthusiast, high gas fees are equally frustrating for us all.
Experts say the best time of day to buy cryptocurrency is early in the morning before the NYSE opens since values tend to rise as the day goes on. Be sure to pay attention to slight daily fluctuations across different cryptocurrencies since trends will vary from coin to coin.
Will ETH Gas Prices Go Down? It is likely that Sharding technology, together with Layer-2 solutions, will help to eventually drive down the price of gas fees on the Ethereum network.
Who Receives Gas Fees? Gas fees go to those supporting and securing the Ethereum network. On Ethereum's execution layer (formerly referred to as Ethereum 1.0), gas fee payouts go to Proof-of-Work (PoW) miners on the Ethereum protocol.
Ethereum Average Gas Price is at a current level of 3.924, up from 3.899 yesterday and down from 13.80 one year ago. This is a change of 0.65% from yesterday and -71.57% from one year ago.
The gas price fluctuates based on network demand. Gas Limit: This is the maximum amount of gas you are willing to consume for a transaction. It ensures that you do not overspend on computational resources. For a simple ETH transfer, the gas limit is usually 21,000 units.
ETH gas fees are calculated based on the amount of computational resources (gas) required to execute a transaction or smart contract on the Ethereum network. The higher the gas limit and gas price set, the higher the fee.
Gas is the fee required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform. Fees are priced in tiny fractions of the cryptocurrency ether (ETH)—denominations called gwei (10-9 ETH). Gas is used to pay validators for the resources needed to conduct transactions.
Introduction: My name is Rueben Jacobs, I am a cooperative, beautiful, kind, comfortable, glamorous, open, magnificent person who loves writing and wants to share my knowledge and understanding with you.
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