Reduced network activity is resulting in lower fees for Bitcoin and Ethereum as both recede heavily from their all-time highs.
The cost of using the Bitcoin and Ethereum blockchains is on the rapid decline, as evidenced by a 93%–95% reduction in average transaction fees over the past couple of months.
Fees are paid to the miners who process transactions on a typical proof-of-work blockchain. The size of the fee depends on the size of the transaction in bytes and how many transactions a coin has gone through in the past (as these need to be checked every time a coin is moved). Supply and demand for space also dictate the size of a transaction fee since blockchains have limited capacity.
Both Bitcoin and Ethereum saw their transaction costs surge to all-time highs in 2021 in April and May, respectively, coinciding with their rising coin valuations and price peaks.
Bitcoin’s average transaction fee hit $62.77 on April 24 — a figure that exceeded the $55 all-time high from December 2017, which stood for more than three years. By Sunday, fees had fallen as low as $4.38. That marked a 93% reduction and sent Bitcoin’s average fee back to levels not seen since December 2020, prior to 2021’s market pump.
The same general pattern was witnessed on Ethereum, where average transaction fees rose as high as $69.92 on May 12. That was another all-time high for the cost of using Ethereum and was undoubtedly fuelled in part by the flurry of activity that accompanied the launch of decentralized finance and the Uniswap exchange, which has long been the biggest consumer of resources on Ethereum.
On Sunday, Ethereum’s average fees were as low as $3.44 — a figure not seen since the first day of January 2021 — amounting to a 95% reduction. Fees on both blockchains tend to jump whenever there is a sudden increase to the coin’s price or a new application that increases network usage.
As reported previously by Cointelegraph, the transaction count on both Bitcoin and Ethereum is also on the decline. Between January and June, the daily number of Bitcoin transactions fell from around 400,000, to just 175,000. Likewise, the number of daily Ethereum transactions fell from 1.6 million to 1 million between May and June alone, marking a 37.5% drop.