Key points to remember
- The amount of Ethereum needed to process transactions has dropped 94% since January.
- Low gas fees on Ethereum result from less demand for block space.
- Historical patterns indicate that when the median cost of using the Ethereum network hits all-time highs, the price of Ethereum often increases.
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Gas fees on Ethereum have reached levels not seen in more than nine months. Although the drop in network activity is the main reason for the decline, the number of unique active users on Ethereum remains stable.
Ethereum activity drops
The cost of using Ethereum is at record highs.
According to data analysis site Nansen, gas charges hit a low of 10 gwei today. Average transaction costs stood at 12 gwei over the past few days, which equates to around $0.67 for peer-to-peer ETH transfers. To put this number in perspective, in January the average gas costs on Ethereum reached 218 gwei, developer a 94% drop in the amount of Ethereum needed to process transactions.
The drop in gas fees on the network is due to the drop in demand for Ethereum block space. Since blocks contain only a limited amount of space for transactions, during times of high congestion users increase the price they are willing to pay to have their transactions processed in the next block. However, when activity decreases, the network decreases the amount of gas needed to meet demand.
NFT marketplace OpenSea, which has historically been one of the biggest users of gas on the Ethereum network in recent months, has seen its activity decline in recent weeks. According to data from the token terminal, OpenSea manipulated $67.5 million in transactions on March 13, down 70% from record highs in February.
OpenSea isn’t the only Ethereum app to see a drop in activity. Uniswap, the most popular decentralized exchange on Ethereum, has seen steady growth decline transactions since last November. On March 12, the exchange hit a new multi-month low in trading volume of $799 million. By comparison, the exchange processed a colossal $8.8 billion in trades over a 24-hour period at its peak on Nov. 10.
Despite the decrease in demand for Ethereum block space, the number of wallets actively using the network does not seem to be decreasing. According to data from Messari, the number of unique active Ethereum addresses has remained consistently above 500,000 and has not capitulated to the lows seen in the summer of 2021.
As the number of unique active users on Ethereum remains constant, this implies that users are still transacting on the network, but less frequently than before.
For many Ethereum users, the low gas fees are probably a blessing. As network transactions are now cheaper, traders can take advantage of smaller arbitrage opportunities, improving capital efficiency. The low gas costs will also be seen as a welcome relief for more casual users. The cost of buying and listing NFTs on platforms like OpenSea has also become significantly cheaper. Users who had airdrops pending or staking rewards to collect will be able to do so without cutting back on their profits as much as they would have when fees were at all time highs.
While gas costs are low, they won’t necessarily stay that way for long. Looking at historical patterns, whenever the median cost of using Ethereum hits all-time highs, it is often jumps back up due to Ethereum price increase. It remains to be seen if a similar event will take place soon.
Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.
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