Author: Robert D. Knight, CoinTelegraph; Translated by: Baishui, Golden Finance

Bitcoin and Ethereum users who need to move funds can take advantage of the low fees in both ecosystems.

On June 23, the average Bitcoin transaction fee hit an eight-month low of $1.93. On June 22, the average Ethereum transaction fee was $0.70, which is pretty good compared to the high of $2.50 in March.

Vitali Dervoed, CEO and co-founder of on-chain decentralized exchange Spark, noted:

“The decline in Bitcoin transaction fees is largely related to a reduction in network congestion and adjustments in mining activity following the recent halving event.”

Dervoed, who has a decade of experience working in various financial institutions including banks, fintech businesses, and DeFi, told us that this drop is not particularly surprising.

“Halvings typically result in a temporary decrease in mining activity as miners adjust to lower profitability. This decrease in activity can reduce competition for block space, which can lower fees,” he said.

Justin d’Anethan, head of business development for Asia Pacific at cryptocurrency market maker Keyrock, said other factors also contributed to the drop in fees.

“There has been a big surge in volume following Ordinals and Rune Inscriptions over the past few months, but the hype seems to have slowed, if not subsided,” d’Anethan noted.

Carlos Mercado, a data scientist at blockchain data firm Flipside Crypto, also pointed to Ordinals as a contributing factor in an interview.

“There were some short-term spikes in on-chain BTC activity and fees after the halving. But overall, the narrative of the Ordinals and Bitcoin Inscriptions comes and goes,” he said.

Potentially bad news for Bitcoin miners

While falling fees may be good news for users, the situation is less positive for miners.

Mercado noted that “Bitcoin fees are making up for lost block rewards.”

He added: “In the long run, to keep Bitcoin secure, miners doing the proof-of-work must be able to recoup their real-world electricity/computation costs. With the halving, their revenue is cut in half overnight, and the only way to recoup that loss is with higher prices or more [transaction] fee revenue.”

D’Anethan made a similar point in his own analysis. Watching fees go up or down would have little direct impact on Keyrock, but even so, others might feel the pinch.

“From our perspective, this [low fees] is neither a positive nor a negative,” he said. “It’s still true for Bitcoin…miners must have felt the pain because the blow from the halving was mitigated for a while by an increase in the number of transactions.”

D’Anethan said people are already feeling the results.

“We did see some miners selling bitcoin, probably to make up for lower earnings and the need to cover expenses,” he said.

Ethereum Fees

While Bitcoin’s low transaction fees are related to the halving event and the reduction in demand for Ordinals, Ethereum’s low transaction fees are related to the Dencun update in March.

“Ethereum has been plagued by the perverse but obvious dynamic that if more people want to use the network, it also becomes more expensive, which reduces the number of people who want to use it, which in turn makes it cheaper,” d’Anethan added.

D’Anethan noted that, as Ethereum had hoped, much of the traffic that Ethereum was carrying has now moved to Arbitrum, Optimism, and Base.

“The Dencun upgrade was designed to address this by making Layer 2 activity cheaper [...] but this has driven users away,” d’Anethan said.

“This is ultimately positive because it makes on-chain activity cheaper and more accessible. Of course, the multitude of chains on top of Ethereum also brings challenges, risks, and costs.”

Dervoed agrees that the move to Layer 2 solutions is reducing fees.

“The decline in Ethereum fees is primarily due to the increasing adoption of L2 solutions such as Optimistic and Zero-Knowledge Rollups. As most complex operations and derivatives trading move to these L2 platforms, Ethereum’s main chain becomes leaner for basic transactions, thus reducing fees,” Dervoed said.

Are low transaction fees good news?

Whether low fees are good or bad is often a matter of perspective.

“Lower fees can be seen as a bullish signal for the ecosystem. The shift towards efficient L2 solutions marks a significant advancement in Ethereum’s scalability and advanced technology roadmap. This makes it a more adaptable framework for future applications,” said Dervoed.

There are different interpretations of the sustainability of this low-cost environment.

Dervoed added: “The ecosystem may experience periodic fluctuations due to changes in mining economics and network activity. However, for Ethereum, low fees are likely to persist as adoption and development of Layer 2 solutions continue to grow, enhancing the capacity and efficiency of the network without sacrificing security.”

"Without a clear catalyst from the Bitcoin or Ethereum ecosystems, it's hard to imagine transaction numbers and ongoing fees rising in any significant way," d'Anethan said. He later added, "Cryptocurrencies are still a very unpopular place. Stable and fast-paced industry. New memes, new products, new hype can appear in a blink of an eye.”

Contrarian View

While Dervoed and d'Anethan are mostly bullish on low fees, Mercado's interpretation is more pessimistic.

“The same trend in Bitcoin and Ethereum (L1 fees are falling) arguably has a similar bearish interpretation,” Mercado said.

“BTC issues $27 million worth of BTC to miners every day, of which only about 5% is matched by direct [transaction] fees,” he told us.

He added that in the long term, “the concern here is that halvings will continue to occur until eventually [transaction] fees or prices have to rise, or miners will be forced to scale back proof-of-work when their fiat-denominated electricity costs exceed their revenue.”

On Ethereum, Mercado said, “Ethereum issues $8M in staking rewards per day, with about 20% matching EIP-1559 burns and blob burns. Burns occasionally exceed releases, but not recently because so much activity is compressed on L2.”

For Mercado, this means that issuance could frequently exceed burn, leading to “long-term inflation of ETH,” which in turn, “could lead to reduced security if consensus becomes more centralized over time” due to Ethereum’s proof-of-stake consensus mechanism.