Ethereum, the second-largest cryptocurrency by market capitalization, has recently seen a significant drop in its total daily transaction fees. On August 27, Ethereum’s transaction fees hit an eight-month low, plunging to 1,719 ETH, which is approximately $2.1 million. This decline can be attributed to a combination of low network activity and the rise of layer 2 scaling solutions.
Data from on-chain analytics firms CryptoQuant and IntoTheBlock show that Ethereum’s transaction fees are the lowest they have been since December 26. The current bearish market outlook has played a significant role in this decline, as reduced activity in decentralized finance solutions has led to lower gas fees. In contrast, high network activity often results in network congestion and skyrocketing fees.
When looking at year-to-date data, daily transaction fees on Ethereum have dropped by 83%, from 16,720 to 1,719 ETH since May 5. Despite the launch of popular platforms like friends.tech on August 10, transaction fees remain low. This highlights the importance of scaling solutions in maintaining affordable fees.
Friends.tech has gained massive traction, attracting over 100,000 users and raising $2 million in revenue in its first month of operation. This success indicates that the era of network congestion and high fees may be a thing of the past. David Lawant, the head of research at Falcon X, noted that the current reduced fees are in contrast to the times when projects like CryptoKitties would clog the Ethereum network for long periods.
One of the main factors contributing to the decreased gas fees on Ethereum is the adoption of layer 2 scaling solutions. Over the years, Ethereum has been at the forefront of smart contract development and has become the go-to blockchain for decentralized applications (Dapps) and decentralized finance (DeFi) protocols. However, this popularity came at the expense of high fees and slow transaction speeds when the network was congested.
To address these issues, Ethereum co-founder Vitalik Buterin and other developers have emphasized the need to upgrade to Ethereum 2.0. This upgrade will transition the network to a Proof-of-Stake (PoS) consensus mechanism, eliminating the need for miners. Additionally, layer 2 solutions have been introduced to alleviate pressure on the network, reducing transaction speeds and fees without compromising security.
In recent years, there has been significant adoption of layer 2 networks, with multiple developers deploying projects on these solutions. For example, friends.tech launched on Coinbase’s layer 2 chain, Base, which has contributed to its smooth operation despite its impressive traction.
Data from IntoTheBlock also shows that the layer 2 scaling solution Optimism mainnet achieved a new all-time high of 900,000 transactions. These developments have led several analysts to describe Ethereum as “unstoppable,” countering claims from rivals like Cardano (ADA) and Solana (SOL) that they will be “ETH killers.”
In conclusion, Ethereum’s total daily transaction fees have reached an eight-month low due to low network activity and the implementation of layer 2 scaling solutions. Despite the popularity of projects like friends.tech, fees remain low, indicating the success of these scaling solutions. This progress has positioned Ethereum as a leading blockchain for smart contracts and decentralized applications, with analysts considering it unstoppable in the face of competition from other cryptocurrencies.