Ethereum’s average cost of commissions falls

The average daily cost of Ethereum transactions has long been a real problem. 

Suffice it to say that during the last peaks, in November last year, it rose as high as $62 on average per transaction, with the median at $34. Taking the latter as a reference, it is more than obvious that a cost of $34 per transaction makes it inconvenient for all low to medium amounts transactions. 

However, these spikes occur only at certain times due to network clogging. 

Ethereum and the problems related to high network costs

In fact, since there are only a finite number of transactions in each block that is mined and added to the blockchain, and since it is not possible to increase the speed at which individual blocks are mined, when a huge queue of transactions forms waiting to be placed in a block and confirmed, priority is given to those with higher fees. 

Therefore at those times of high demand, the average cost per transaction soars. 

All that can be done to achieve a reduction is to wait until the queue empties a bit, waiting for miners to agree to place transactions with lower fees in the blocks they mine. 

In other words, since the supply of space within the blocks is limited and inelastic to the market, when the demand for registration of transactions on the blockchain increases, it can only increase the price of that registration, therefore, the fees. 

As of January 2022, however, the trend has reversed. There were fewer requests to register transactions on the Ethereum blockchain than the miners could fulfill, so the cost of transactions began to fall. 

At first, the average daily cost per transaction returned to pre-peak levels, as in February, the average dropped to $20 with the median below $10, and in the following months, the decline continued. 

In mid-March, the average fell to $6, with the median below $3, but then there was a brief climb back up. 

The decline resumed in May, especially as crypto markets collapsed due to the implosion of the Terra ecosystem. 

Gas fees drop sharply on Ethereum

On May 15, the average daily cost per transaction had dropped to $5, with the median at just over $2. After a small rise in June, July saw new annual lows.

In particular, on July 2, the average cost had also fallen well below $2, with the median even at $0.7. 

Although these are the lowest costs since late 2020, they are still slightly too high to allow, for example, microtransaction registration. That’s why various development teams on Ethereum are working on trying to reduce them significantly again, thanks to the move to PoS and the development of second layer-based solutions. 

Also, this is only a reduction due to the sharp decline in demand for transactions to be recorded on the Ethereum blockchain. Sooner or later, that demand will increase again, causing fees to rise likewise. 

The switch to PoS is expected to take place by the end of the year, although many fear it will not have a big impact on transaction costs right away. However, in the medium term, it could help quite a bit, especially if the use of second-layer-based solutions becomes more widespread, as happened to Bitcoin with Lightning Network. 

Suffice it to say that there are far fewer transactions on Bitcoin’s blockchain, yet the costs are lower. In fact, until the end of 2020, they were higher than Ethereum, but in 2021 precisely because of the spread of LN, they collapsed compared to those of the past. 

In November, the average daily cost per transaction on the Ethereum blockchain had skyrocketed to over $60, while on Bitcoin, it was less than $5, although until only a year earlier, the positions were reversed. 

Thus, something similar to what happened to BTC may happen to ETH, namely a dramatic reduction in transaction cost, especially at peak times.