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Total Ethereum transaction fees have never been higher, owing to a combination of increased network use (and resulting congestion) and historically high ETH costs.
According to Coin Metrics figures, transaction fees for May 2021 are on target to crack the existing monthly high of $722 million at some point today, with two full weeks remaining in the month. If the current trend holds, the blockchain network’s Q1 network sales totals of $1.7 billion in ETH will be surpassed by the end of May.
The previous high was achieved just three months earlier, in February 2021.
When anyone uses the Ethereum network to transfer funds or use a smart contract (automated code they communicate with to, for example, bid on an NFT at auction or trade properties on a decentralised exchange), they must pay a premium, which eventually goes to miners along with a block subsidy of newly minted ETH.
Transaction costs fluctuate based on network congestion; the more transactions that are processed, the higher the fees will go if customers are able to pay a premium. This month’s record payments, which are denominated in dollars, thus represent not only overall network use, but also the price of Ethereum. According to Nomics numbers, ETH hit an all-time high of $4,165 one week ago.
If Ethereum were a company, as former Ark Investment analyst James Wang imagined in a Substack newsletter today, those revenue numbers would be very good. Noted Wang of last month’s $716 million haul: “For the month of April, Ethereum generated [an] annualized revenue run rate of $8.6 billion—comparable to [Amazon Web Services] in 2015.” Over the course of the next five years, AWS expanded its revenue 575%, something Ethereum enthusiasts are hoping to do.
Yet that’s contingent on Ethereum being able to scale its operations. Only a finite number of transactions can be processed with each new block in the chain, and the network is approaching the limits of its capacity. A new record for transaction fees would be contingent not on more transactions, but rather on increased price and/or users willingly paying higher gas prices to ensure their transaction gets through.
That is, if it were the same. However, upcoming Ethereum network updates are expected to improve that.
The “London,” network update in July would include Ethereum Improvement Proposal (EIP) 1559, a contentious project that would automate gas rates and then burn the premium instead of paying it to miners. As a result, it would reduce the availability of ETH, rising demand while also removing any network congestion.
Although the latest update could reduce transaction costs slightly, the actual change will not occur until Ethereum 2.0 is completely deployed. Unlike the existing network, which depends on “mining” with energy-intensive hardware, the new proof-of-stake network would protect the network by requiring users to lock up their tokens in a smart contract. Ethereum 2.0 aims to significantly reduce latency and allow for thousands of transactions per second rather than the current network’s 15 or so, lowering transaction costs to more manageable levels.
Meanwhile, Ethereum miners can take advantage of their record hauls when they can.