Ethereum Gas Fees Drop Below 1 Gwei, Positive Impact or Potential Problem?

Bittime – Ethereum gas fees have plummeted to their lowest levels in recent years, now averaging below 1 gwei. This decline was driven by an increase in transactions on Ethereum's Layer-2 network.

Cheaper transactions benefit users, but also raise discussions about the long-term impact on the network.

The following is a complete explanation.

Gas Fees Drop, Transactions Get Cheaper

According to Etherscan data, the average gas fee on the Ethereum main network briefly fell below 1 Gwei yesterday.

Even though it has now risen to around 2 Gwei, around $0.06, this drop is still significant. Some transactions can even cost under 5 Gwei, around $0.02.

The reduction in gas fees is also seen in Ethereum's Layer-2 scaling solution. Data from Gasfees.io shows the average fee on Optimism, Arbitrum, and others is currently under $0.01.

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Reasons for Falling Gas Costs

Market watchers suspect the drop in gas fees is related to the introduction of blob-based transactions with the Dencun update in March.

This update significantly increases Layer-2 transaction volume due to its much lower fees.

Data from L2beats shows leading Layer-2 networks like Arbitrum and Base now process more transactions per second (TPS) than Ethereum itself.

This trend has prompted some, such as Martin Koppelman, co-founder of Gnosis, to advocate for increased Layer-1 activity.

Koppelman argues that raising gas limits, even at low cost, could be a strategic move to increase base layer use.

Impact on Ethereum Supply

On the other hand, falling gas fees raise concerns about grid inflation. With less ETH burned, the network supply actually increases.

According to Ultrasound.money, only 120 ETH was burned in the past day, while supply increased by more than 2,500 ETH. This imbalance shows the supply of ETH continuing to grow, contrary to the previously observed deflationary trend.

If this trend continues, Ethereum's supply could increase by more than 943,000 ETH, equivalent to $2.5 billion, within the next year.

Impact of Lowering Ethereum Gas Fees

The drastic reduction in Ethereum gas fees is a positive development for the Ethereum ecosystem. However, this also raises questions about the long-term impact on the network.

1. Positive Impact

• Increased Adoption: Lower transaction fees could encourage wider adoption of Ethereum, especially in cost-sensitive applications such as payments and gaming.
• Activity Stimulus: With more affordable fees, users may be more likely to make transactions, increasing activity on the network.
• Healthy Competition: The drop in gas costs can drive innovation in Layer-2 scaling solutions to attract more users.

2. Potential Negative Impact

• Ethereum Inflation: A decrease in gas fees could reduce the amount of ETH burned, potentially increasing the total supply of Ethereum.
• Dependencies on Layer-2: If users increasingly switch to Layer-2 due to lower fees, it could reduce the use of Ethereum Layer-1.
• Network Stability: A decrease in revenue from gas fees may affect the incentives for validators to secure the network.

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Conclusion

The decrease in Ethereum gas fees has a positive impact on users with cheaper transactions. However, this also raises potential problems related to network inflation.

Going forward, the right strategy is needed to balance affordable transaction fees with Ethereum supply stability.

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