Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption

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As a seasoned crypto investor with a decade of experience under my belt, I must say that the recent Ethereum gas fee reduction is music to my ears. Having witnessed the astronomical fees during the DeFi summer of 2020 and the NFT craze in early 2021, I can attest to the fact that this latest development brings a breath of fresh air.

As a crypto investor, I’m thrilled to share that sending Ethereum (ETH) transactions has become more affordable recently! The decrease in traffic on the Ethereum blockchain has led to a significant drop in transaction fees. Specifically, the average cost to send a transaction has dropped to 1.9 gwei, and even low-priority transactions are now around one gwei or less. This is the lowest it’s been in five years! Despite the increased activity on Layer-2 networks, it’s encouraging to see the Ethereum blockchain becoming more cost-effective.

Ethereum Dencun Upgrade Brings Gas Fee Reduction

Based on Dune Analytics’ findings, the average gas price for transactions decreased significantly on August 10th. This is the lowest it’s been since mid-2019, marking an almost 98% drop from its peak of approximately 83.1 gwei in March this year. Interestingly, the Ethereum Dencun upgrade was implemented during the same month, and nine Ethereum Improvement Proposals (EIPs) were activated.

Among these Ethereum Improvement Proposals (EIPs), one introduced a concept called data blobs, often referred to as preliminary sharding. This feature is designed to lower transaction costs for Layer-2 blockchain networks. Additionally, the Dencun upgrade anticipates significantly reducing Ethereum gas fees, making them nearly insignificant.

In April, it was observed through Dune Analytics that Ethereum’s transaction fees (gas fees) reached their smallest size in approximately three years.

In the Ethereum network, we prioritize enhancing transaction efficiency through the use of Layer 2 (L2) solutions. By offloading some operations from the main layer-1 (L1) blockchain, these L2s can process transactions at a lower cost. However, it’s essential to note that the L1 Ethereum blockchain is still utilized for confirming that transactions have indeed taken place.

On August 10th, Martin Köppelmann, co-founder of Gnosis, voiced his thoughts on the drop in Ethereum gas fees via X. He stated, “Ethereum should see an increase in Layer 1 activity once more.”

Currently, Basefee stands at approximately 0.8 GWEI, which is a multi-year low. To cover staking rewards, you’d need around 23.9 GWEI. In my opinion, Ethereum could benefit from increased L1 activity once again. It might seem contradictory given the current low rates, but increasing the gas limit could be a strategic move to boost activity on the network.

— Martin Köppelmann 🦉💳 (@koeppelmann) August 10, 2024

It’s his opinion that a minimum gas fee of around 23.9 gwei should be sufficient to cover the costs associated with earning staking rewards. In simpler terms, these rewards are payments made to individuals assisting in the verification of transactions within the blockchain network.

At seemingly contradictory low rates, increasing the gas limit could form part of an effective strategy, as suggested by the Gnosis co-founder.

Ethereum L2s Records High Performance

Typically, the transaction activity on Ethereum’s layer-2 solutions significantly outperforms the base chain of Coinbase Global Inc (NASDAQ: COIN).

Data from L2Beat indicates that Base processed over 109 million transactions within the past month, significantly outpacing Ethereum’s 33 million. This impressive performance by Base is nearly a year after Coinbase introduced it. In March, Coinbase unveiled its intention to transfer USDC stablecoins from customer and corporate accounts to Base.

Over the past month, I’ve observed a significant increase in transaction volume for platforms such as Arbitrum and Taiko. In total, these L2s executed approximately 97 million additional transactions during this period.

At present, a smaller amount of Ethereum is being utilized for transactions or distributed as rewards to stakers. This situation has led to a substantial increase in its circulating supply. In fact, over the past week, about 13,400 ETH, equivalent to around $34.1 million, have been introduced into the Ethereum supply.

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2024-08-12 13:47