The cost of transacting on the Ethereum blockchain has significantly decreased, reaching a five-year low, as advancements in layer-2 networks enhance efficiency and reduce network congestion.
As of August 10, according to data from Dune Analytics, the median gas fee required to send a transaction on Ethereum fell to 1.9 gwei, marking the lowest rate since mid-2019. This represents a dramatic 98% decline from the 83.1 gwei peak earlier in March this year. Further data from Etherscan on August 12 highlighted that low-priority transactions, typically processed within about 10 minutes, now cost as little as 1 gwei, or approximately seven cents.
Impact of the Dencun Upgrade
Ethereum’s significant drop in transaction fees can be attributed to the Dencun upgrade implemented in March, which included nine Ethereum Improvement Proposals (EIPs). One of these proposals introduced the concept of data blobs, or proto-danksharding, designed specifically to reduce transaction costs on layer-2 blockchains
The Shift to Layer-2 Networks
The Ethereum ecosystem has increasingly relied on layer-2 solutions to scale effectively. These networks handle transactions off the main Ethereum blockchain (layer-1) but still utilize it for verifying transactions. This method significantly reduces the burden on the main network, allowing for cheaper and faster transactions.
Recent data from L2Beat indicates that activity on Ethereum’s layer-2 networks, such as Base, Artbitrum, and Taiko, has substantially surpassed that on the main blockchain. In the past 30 days, Base recorded over 109 million transactions compared to Ethereum’s 33 million, while Artbitrum and Taiko combined added another 97 million transactions.
Layer-2 Transaction Activity Comparison:
- Base: Over 109 million transactions
- Ethereum (Layer-1): 33 million transactions
- Artbitrum and Taiko: 97 million transactions combined
Economic Implications of Reduced Gas Fees
With the plunge in gas fees, there has been a significant decrease in the amount of Ether used for transaction fees and as payouts to stakers. This reduction has led to an increase in Ethereum’s circulating supply. Over the past seven days, nearly 13,400 ETH worth approximately $34.1 million has been added to the supply, as per ultrasound money data.
Martin Köppelmann, co-founder of Gnosis, expressed concerns over the current low gas fees on X. He noted that a minimum of 23.9 gwei is needed to adequately fund staking rewards, essential for those validating blockchain transactions. Köppelmann suggests that, paradoxically, increasing the gas limit might be a strategic move to revitalize layer-1 activity and support staking incentives.
As Ethereum continues to evolve with its layer-2 networks taking a more prominent role, the main blockchain faces the challenge of maintaining relevancy and profitability for miners and stakers. The ecosystem must balance the benefits of lower transaction costs with the need to incentivize network support activities.
Strategies that could be considered include adjusting gas limits, re-evaluating staking rewards, and possibly integrating new functionalities that can attract more transactions back to layer-1 without compromising the efficiency gains achieved by layer-2 networks.
Ethereum’s median gas price has hit a record low, reflecting significant advancements in network efficiency primarily driven by layer-2 scaling solutions. While this development benefits users with lower transaction costs, it presents new challenges in maintaining economic incentives for network validators. The Ethereum community and its developers must navigate these challenges carefully to ensure the long-term health and functionality of the network.
Featured image credit: benzoix via Freepik
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