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Reduced network activity is resulting in decreased fees for Bitcoin and Ethereum, both of which have fallen significantly from their all-time highs.
The cost of utilising the Bitcoin and Ethereum blockchains is rapidly decreasing, as indicated by a 93–95 percent decrease in typical transaction fees over the last few months.
On a conventional proof-of-work blockchain, fees are paid to miners who process transactions. The magnitude of the fee is determined by the transaction size in bytes and the number of transactions a coin has experienced in the past (as these need to be checked every time a coin is moved). Because blockchains have limited capacity, the magnitude of a transaction fee is also determined by supply and demand for space.
In April and May of 2021, both Bitcoin and Ethereum witnessed their transaction fees reach all-time highs, corresponding with growing coin values and price peaks.
On April 24, Bitcoin’s average transaction fee reached $62.77, surpassing the $55 all-time high set in December 2017 and held for more than three years. Fees have dropped as low as $4.38 on Sunday. This was a 93 percent decrease and returned Bitcoin’s average charge to levels not seen since December 2020, prior to the market push in 2021.
The same general tendency was seen on Ethereum, whose average transaction costs reached $69.92 on May 12. That was yet another all-time high for the cost of using Ethereum, and it was certainly fueled in part by the frenzy of activity that preceded the debut of decentralised banking and the Uniswap exchange, which has long been the largest consumer of Ethereum resources.
On Sunday, Ethereum’s average fees dropped as low as $3.44, a value not seen since January 1, 2021, representing a 95 percent decrease. Fees on both blockchains tend to rise when there is a rapid spike in the price of the currency or the introduction of a new application that boosts network activity.
As previously reported, the number of transactions on both Bitcoin and Ethereum is decreasing. Between January and June, the number of Bitcoin transactions per day dropped from roughly 400,000 to around 175,000. Similarly, the number of daily Ethereum transactions plummeted 37.5 percent between May and June, from 1.6 million to 1 million.