Ethereum and Bitcoin are experiencing a notable decline in transaction fees, reaching multi-month lows despite high network activity.

Also Read: Bitcoin price falls amid US stock market rally, down 10% from June high

This development coincides with one of the most challenging weeks for the broader crypto market in 2024, with Bitcoin falling below $63,000 and many altcoins experiencing double-digit losses.

Ethereum’s gas prices – the fees required for conducting transactions on the network – have plunged to levels not seen in years. The average gas price on Ethereum recently stood at just 7.3 Gwei, a dramatic decrease from the 98.68 Gwei recorded on March 5. This significant drop makes the network considerably more affordable for developers and users.

Source: Ychart

The reduction in Ethereum gas fees is particularly noteworthy given the high level of network activity.

Ethereum Layer 2 solutions drive down prices

Data from L2Beat shows that on June 21, Ethereum Layer 1 and Layer 2 protocols recorded an average of 299 transactions per second. This paradox of low fees amid high activity is primarily attributed to the increased adoption and efficiency of Layer 2 (L2) solutions.

L2 solutions are designed to enhance Ethereum’s scalability, process transactions off the main Ethereum chain, thereby reducing congestion and costs. The widespread adoption of these protocols highlights their critical role in easing network traffic and lowering gas prices.

According to Pistachio Fi founder Brian Smocovich,

The L1 gas market is now more efficient because most volume is on L2s, L2 -> L1 settlement is 100x cheaper than pre-4844, and we have the gas market efficiencies of EIP-1559.

Brian Smocovich

The impact of these efficiency gains is evident in the reduced cost of everyday transactions. For example, performing a swap on Uniswap now costs just $1.06, trading an NFT on Seaport costs $1.49, and transferring ETH on-chain costs only $0.23. Using L2 networks like Base, which incorporates “blob” transactions, reduces these fees even further, with a Uniswap swap on Base costing just $0.0016.

However, the dramatic reduction in gas fees has also led to a decrease in Ethereum’s burn rate, which is now at a 12-month low. This has caused Ethereum’s supply to become slightly inflationary, with a growth rate of around 0.56% per year, according to ultrasound.money.

Bitcoin transaction fees hit lowest level since October 2023

Bitcoin is experiencing a similar trend in transaction fees. According to recent data the average Bitcoin transaction fee reached $1.94, its lowest since October 2023. This marks a significant decrease from the fee spikes often seen during periods of high market volatility or price appreciation.

Source: ycharts

Given the historical context, the low fees on the Bitcoin network are exciting. Every major bullish period since 2012 has typically resulted in a corresponding fee increase, except for the 2021 bull run. Bitcoin’s price touched $69,000 during that period, but transaction fees remained relatively low.

The current low-fee environment for Ethereum and Bitcoin comes when the broader crypto market is experiencing significant turbulence. Bitcoin’s price has fallen below the $63,000 support level, while many altcoins have seen double-digit percentage losses. This market downturn has led to billions in liquidations from leveraged positions, while spot holders have also incurred heavy losses.

Also Read: Crypto market faces severe correction amid token dilution and investor exodus

Despite the market turmoil, the low transaction fees on both networks represent a silver lining for users and developers. Lower fees make these blockchain networks more accessible and cost-effective for various applications, from decentralized finance (DeFi) to non-fungible tokens (NFTs).

Cryptopolitan Reporting by Florence Muchai