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Declining transaction fees of second-largest cryptocurrency Ethereum

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Recent analysis from blockchain analytics company Arcane Research, are showing that Ethereum transaction fees are “declining” at the moment. The Ethereum network’s transaction fees have dropped by 71.15%.

Arcane used CoinMetrics data in their more recent analysis. It helped them illustrate that the seven-day average for Ethereum transaction fees is at its lowest level.

The fees are at their lowest since August 2021. Since the second week of January, they’ve been steadily declining. The company suggested that now could be a good moment if you’ve been waiting for cheaper costs before transferring tokens or minting NFTs. That isn’t to argue that goods are inexpensive for the common person. Arcane estimates that a token switch will cost around $15. They stated that it is still a bargain compared to the $200 that day they in fall 2021.

At the moment, wallet-to-wallet transfers, which Arcane argues are simpler, cost roughly $50.

Ethereum Transaction expenses grew as a result of the NFT craze

Unsurprisingly, the decrease in fees corresponds with a drop in crypto asset values. Ethereum’s exchange value has dropped over 12% in the last week and nearly 15% in the previous month. Transaction fees become lower in monetary terms when the value of ETH decreases.

However, a closer examination of CoinMetrics data indicates that transaction costs in ETH are also at a six-month low. This hints to lower network needs due to a mix of diminishing interest in scaling solutions. We have rollups and sidechains and better dependability on these solutions. Rival networks such as Solana and Avalanche have eroded Ethereum’s market share. They provide comparable services such as decentralized banking, gaming, and NFTs. They offered these services for far cheaper costs and speeds.

Nevertheless, neither of these are plausible responses. As reported, scaling solution adoption has remained rather stable. There has not been a convincing indication that other layer-1s are to blame for the drop in transaction pricing.

Instead, the continuous decline might be a sign of complete disinterest in NFTs. NFTs are blockchain-backed contracts related to digital or physical assets.

Tokenizing digital items in a form of non-fungible tokens

The Ethereum network gave birth to these non-fungible tokens. They generally come in the form of digital art or collectibles, and they became viral last year.

NFT’s popularity resulted in more traffic on the network. The traffic balances supply and demand by calculating the processing costs of each transaction, token exchange, auction bid, and so on. Afterward, they are passing these costs on to users in the form of a charge.

Ethereum has been working on a long-term solution to make the network more scalable. The core developers are planning to switch to a proof-of-stake network between April and June this year.

Later on, it will proceed to create “shard chains”. Shard chains will allow many more transactions to happen at once while also reducing congestion. However, there is still no exact date when are they going to be available.

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