Ethereum is expected to see an increase in network usage as transaction fees drop to lower levels, according to Santiment, a market intelligence platform. The platform’s analysis revealed that Ethereum’s network fees recently reached an unusually low average of $1.63. This is a significant milestone for the blockchain as it approaches its 10th anniversary.
In the past, when transaction fees are low, traders tend to increase the frequency of their transfers, leading to greater activity on the blockchain. Santiment’s analysis highlights four key fee tiers, each with its own implications for market behavior. When average fees surpass $10, user activity tends to decline, especially during market tops when demand peaks.
Fees ranging from $6 to $10 are associated with periods of heightened demand, often driven by fear of missing out (FOMO) during bull runs. During these times, increased user interaction results in higher transaction costs. On the other hand, average fees ranging from $2 to $6 are more typical of flat or sideways markets, indicating balanced network usage without excessive cost pressure.
The current average fee of below $2 encourages increased activity and utility, which is often seen during market bottoms. This drop in fees signifies less congestion and greater affordability.
One of the main reasons behind the recent fee reduction on Ethereum is the implementation of the Dencun upgrade, which was rolled out on March 13. This upgrade introduced a new mechanism for reducing transaction costs on Layer-2 (L2) networks. By utilizing a new data storage method called Binary Large Objects (blobs), L2 networks were able to significantly decrease transaction costs. For example, the average transaction fee on Optimism, a popular L2 network, dropped from $2.44 to $0.068 shortly after the upgrade’s launch. Similarly, fees on Coinbase’s Layer-2 Base decreased from $1.212 to $0.196 within the same period.
There were discussions within the Shiba Inu community about using SHIB as gas fees on the Ethereum network. However, Lucie, the marketing lead for the Shiba Inu ecosystem, clarified that integrating an alternative token like SHIB would require significant infrastructure changes, potentially compromising the network’s security and efficiency. Ethereum’s architecture relies on ETH for transaction fees to incentivize validators and maintain network operations.
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