Transaction Fees On Bitcoin And Ethereum Normalize Amid Market Cooldown

The crypto sector seems to have entered a cooldown period, with many of the projects finding solid ground after the two-week market plunge in the middle of May.

The price normalization leads to decreased transaction costs, as there are fewer transactions to process. For instance, the average Bitcoin transaction fees have sunk to around $7, according to BitInfoCharts. The last time the gas fees were that low was in January 2021. On the other side, Bitcoin’s average transaction cost reached a high of $62.8 per transaction on April 21.

The gas fees decline means that Bitcoin miners are not so interested in processing transactions. In fact, the amount of computing power required to validate Bitcoin transactions fell by 16% on May 30, 2021, which is the steepest drop in a year.

Furthermore, a set of China and Taiwan restrictions on water-dependent industries are kicking in on June 1, which is a direct hit to a big portion of miners. The lack of large mining corporations in the mining mix means that the Chinese influence over Bitcoin transactions validating is temporarily lessened.

Meanwhile, Ethereum also shows a transaction fee decrease pattern, in conjunction with Bitcoin. The growth of the NFT and DeFi sector on Ethereum over the past year skyrocketed transaction fees on the network. Many small-scale users found DeFi and NFT to be too expensive to deal with, calling Ethereum “a network for the rich”. The majority of DeFi protocols still prefer Ethereum as their main network, which, in conjunction with Uniswap recording record a weekly high of $14.92 billion, clogged Ethereum’s blockchain. The congestion pushed transaction costs up.

The issue with high transaction costs and platform scalability are among the key points in the upcoming Ethereum 2.0 network update. However, in order to reach v2, Ethereum’s community must first undergo the much-anticipated EIP-1559, Ethereum’s which focuses on reducing fees and changing the auction mode.

According to Ethereum’s development team, the network update would remove “volatility and uncertainty” towards Ethereum’s GAS. Furthermore, a part of the gas fees would be burned.

However, looking at the trading volumes graphs, the lower gas fees didn’t increase the trading volumes. In contrast, 24-hour trade volumes have decreased on May 30 to $35 billion, compared to $56 billion amid ETH’s all-time-high (ATH) of $4,362.

Meanwhile, Layer 2 scaling solutions are aiming directly at Ethereum, as they offer more transactions per second at a lower cost per transaction.