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Ethereum Threatens to be Affordable as Gas Fees Drop 94% in 68 Days

Last Updated May 13, 2024 7:57 AM
Teuta Franjkovic
Last Updated May 13, 2024 7:57 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Transaction costs on Ethereum have dropped dramatically since early March, making the network more accessible for users.
  • Ethereum’s inflation rate decreased following its transition to Proof-of-Stake, while transaction volume remains robust.
  • Reduced fees benefit users but challenge validator incentives, a key issue in Ethereum’s ongoing evolution.

The cost of transacting on the Ethereum blockchain has experienced a dramatic drop.

Since March 5, 2024, Ethereum’s gas fees have fallen 93.7% , moving from $30.33 per transfer to just $1.91 per transaction. In theory, this should make it more accessible and economical for users to conduct transactions.

Ethereum Gas Fees Plummet: Transactions Now Under $2

The average Ethereum transaction fee  is now about 0.00065 ETH, or $1.91.

Additionally, a basic ETH transfer currently costs  between $0.18 to $0.37, according to data from etherscan.io’s gas tracker .

ETH transactions
Credit: bitinfocharts

This weekend, the costs for interacting with the Ethereum network are varied depending on the type of transaction. Engaging in a decentralized exchange (DEX) swap is estimated to cost between $4.16 and $7.28. Meanwhile, conducting an NFT sale may cost between $7.03 and $12.31.

Ethereum’s Inflation Rate Falls to 0.895% After PoS Transition

Over the past 50 days, Ethereum has maintained a high level of activity, with an average of just over one million transactions daily. The busiest day  was on March 22, with 1.324 million transactions. Meanwhile, the slowest was April 4, 2024, with 1.091 million transactions. Throughout this period, the average daily transaction count was about 1.212 million.

ETH busiest day
Credit: ycharts.com

Ethereum’s current annual inflation rate stands at 0.895% following  its September 2024 transition to a proof-of-stake (PoS) consensus mechanism. This shift from the original proof-of-work (PoW) system has significantly affected Ethereum’s issuance rate.

Under the PoW framework, the annual issuance rate would have been 3.923%. Additionally, it has been 1,010 days since the implementation of the London fork on August 5, 2021. This update introduced several key changes, including a revamped Ethereum’s fee market.

This transition to PoS and updates like the London fork have helped reduce the overall issuance and inflation rates of Ethereum.

Ethereum Inflation Rate
Credit: ultrasound.money

The London upgrade implemented Ethereum Improvement Proposal (EIP)-1559, which changed transaction fees’ management. London shifted the gas fee structure from a first-price auction model to a more predictable and stable base fee. This base fee is not paid to miners, now validators in the proof-of-stake system, but is, instead, burned. Since the implementation of EIP-1559, Ethereum has burned around 4.29 million ETH , worth $12.51 billion.

While this change has reduced Ethereum’s overall inflation rate by cutting the ETH supply of ETH, it also poses challenges for validators. The burning of the base fee means a portion of what could have been validators’ revenue is, instead, removed from circulation.

Can Ethereum Balance Affordability with Validator Incentives?

The reduction in Ethereum transaction fees, following the implementation of EIP-1559, affects incentives essential for network security. The modification creates a conflict between making transactions affordable and ensuring that validators receive adequate compensation.

Ethereum is not the only major blockchain to face challenges. For instance, Bitcoin has experienced a significant decline in hashpower, with over 100 exahash per second (EH/s) leaving the network since the last halving event. This reduction in hashpower is largely attributed to the decreasing hashprice, which reduces the profitability for miners.

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