Here’s Why The Rapid Decline In The Ethereum Fees Could Be A Problem

The
Ethereum
gas
fees
for
transactions
have
dropped
massively
amidst
a

broader
decline

in
the
cryptocurrency’s
price.
According
to
recent
data,
the
base
fee
paid
by
users
has
fallen
to
an
astonishingly
low
0.82
Gwei,
a
clear
indication
of

reduced
activity
on
the
Ethereum
network.

Rapid
Decline
In
Ethereum
Base
Fees

Data

from
Ultra
Sound
Money
reveals
that
Ethereum’s
base
gas
fee
experienced
a
continuous
decline
throughout
last
week,
eventually
hitting
a
multi-year
low
of
0.82
Gwei
on
Saturday,
August
11.
This
significant
drop
in
gas
fees
can
be
attributed
to
a
decrease
in
large
transactions
on
the
Ethereum
network.
On-chain

data
from

IntoTheBlock
indicates
a
sharp
fall
in
the
number
of
transactions
greater
than
$100,000,
with
numbers
dropping
from
16,990
transactions
on
Monday
to
just
2,620
transactions
by
Saturday.

The
decrease
in
gas
fees
has
also
resulted
in
fewer
ETH
being
burned.
This
is
based
on
the
idea
that
the
base
fees
paid
by
users
are
burned
and
removed
from
circulation
in
order
to
create
deflationary
pressure
on
the
supply
of
ETH.
Ultra
Sound
Money
data
shows
that
only
3,698
ETH
tokens
were
burned
over
the
past
seven
days,
while
18,065
new
ETH
tokens
were
issued
in
the
same
period.
This
imbalance
between
burned
and
newly
issued
tokens
has
led
to
a
net
increase
in
the
circulating
supply
of
Ethereum,
which

contradicts
the
expected
deflationary

outcome.

Why
Does
Gas
Fees
Matter?

The

relationship
between
gas
fees,
network
activity,
and
the
overall
supply
of
ETH
is
a
key
factor
traders
and
users
monitor
from
time
to
time.
The
gas
fees
on
Ethereum
are
fundamentally
tied
to
the
level
of
activity
on
the
network.
As
the
number
of
transactions
increases,
so
does
the
demand
imposed
on
validators
to
process
and
validate
these
transactions.

When
the
network
is
congested
with
a

high
volume
of
transactions

waiting
to
be
added
to
blocks,
users
must
pay
a
higher
gas
fee
if
they
want
their
transactions
to
be
processed
quickly.
By
doing
so,
they
can
ensure
that
their
transactions
are
validated
and
completed
in
the
next
block.

Historically,
higher
gas
fees,
though
unfavorable
for
users,
have
been
seen
as
a
reflection
of
increased
interest
and
activity
on
Ethereum.
Such
periods
of
high
network
demand
often
correlate
with
bullish
market
action.
At
its
peak,
users
paid
an
average
daily
gas
price
of
$196.638
in
May
2022.

In
times
of
low
activity,

like
what
is
currently
being
observed,
the
reduced
demand
always
leads
to
a
decrease
in
gas
fees.
While
lower
gas
fees
may
be
beneficial
for
users
looking
to
save
on
transaction
costs,
they
also
reflect
a

period
of
sluggish
activity

on
the
network.
At
the
time
of
writing,
Ethereum
is
trading
at
$2,585
and
is
down
by
3.58%
in
the
past
24
hours.

Featured
image
created
with
Dall.E,
chart
from
Tradingview.com