Bitcoin and Ethereum transaction costs have dropped, and we have found these main reasons

High fees are often related to the high activity of the blockchain network.

In recent months, not only the prices of Ethereum and Bitcoin have fallen, but the current cost of using these two networks-namely transaction fees-is also falling.

The world of coins-Bitcoin and Ethereum transaction costs have dropped, we have found these main reasons

On July 10, the average bitcoin transaction fee fell to $3.92, and just about three months ago, on April 21, the bitcoin transaction fee hit a historical record of $62.78. According to data from BitInfoCharts, the last Bitcoin transaction fee as low as it is now occurred on December 23, 2020, when the average Bitcoin transaction fee was 3.61 US dollars.

No matter how you look at it, Bitcoin and Ethereum have both experienced a moody year. The average transaction fee in April this year was the highest in history. It is indeed very abnormal. It is important to know that the only time Bitcoin approached the record high fee was on December 23, 2018, when the average transaction fee was $52.18. It is worth noting that the price of Bitcoin also hit a record high of $64,300 on April 14, but the average transaction fee on that day was $29. But only a week later, the price of Bitcoin dropped to about $55,000. At this time, the transaction fee hit a historical record of $62.79. As a result, there were more than 130,000 unprocessed transactions on the network.

High fees often have a certain correlation with the high activity of the blockchain network -when everyone scrambles to make bitcoin transactions, the network fees will rise because they exceed the supply of miners. When investors are eager to exit the market, transaction costs will increase even more.

At this stage, Bitcoin seems to be less dramatic. According to data from Coingecko at the time of writing, the price of Bitcoin is $33,588.54, a decrease of 0.7% in 24 hours. , Although there is still a long way to go compared with the historical high in mid-April, it has risen slightly from the previous few days.

In mid-May, when the three China Internet Finance Association, China Banking Association, and China Payment and Clearing Association jointly issued an announcement requiring a correct understanding of the essential attributes of virtual currency and related business activities, relevant institutions must not conduct business related to virtual currency: Financial institutions, payment institutions and other member units must effectively strengthen their social responsibilities. They must not use virtual currencies to price products and services, and must not underwrite insurance businesses related to virtual currencies or include virtual currencies in the scope of insurance liability, and must not directly or indirectly provide customers with other services. Services related to virtual currency, including but not limited to: providing customers with virtual currency registration, trading, clearing, settlement and other services; accepting virtual currency or using virtual currency as a payment and settlement tool; developing virtual currency exchange services with RMB and foreign currencies; Develop virtual currency storage, custody, mortgage, etc.; issue financial products related to virtual currency; use virtual currency as investment targets for trusts, funds, etc.

Immediately afterwards, Sichuan, Xinjiang, and Inner Mongolia also began to suspend bitcoin mining operations, and bitcoin computing power also plummeted. According to the Bitcoin Power Consumption Index of Cambridge University, since Sichuan stopped mining, global Bitcoin energy consumption has been reduced by more than half. Before the real “crack” of bitcoin mining in China, the global bitcoin mining energy consumption was as high as 130 TWh. If ranked according to the national energy consumption ranking, bitcoin energy consumption is among the world’s leading. But since May, the situation has changed dramatically. Specifically, the energy consumption of the Bitcoin network has fallen by 51% since May 10: from an all-time high of 141 TWh to 68 TWh. The carbon footprint of the Bitcoin network previously exceeded 60 billion pounds of coal burned, which is equivalent to the annual average electricity consumption of 9 million households. But now, as the energy consumption of the Bitcoin network has dropped by more than 50%, the direct impact on the environment will also be reduced.

According to data from BitInfoCharts, Bitcoin’s entire network computing power was about 97.53 Ehash/s on July 10, the lowest point since May 24, 2020.

There is no doubt that the regulatory effect is immediate. Bitcoin seems to have entered a state of “inertness”. What about Ethereum?

Ethereum transaction fees also fell: there are three reasons

According to a report released by the crypto market research company Coin Metrics, the average gas price on the Ethereum blockchain has been at its lowest point since March 2020. Gas refers to the transaction fee on Ethereum, which is currently in the range of 15-30 gwei, which is about 10 times lower than in April. At that time, as the price of ETH soared, the transaction fee on the Ethereum network once soared to double digits. (Golden Finance Note: 1 gwei = 0.000000001 ETH)

Unlike Bitcoin, Ethereum transaction fees are determined by multiplying the gas price by the amount of gas used. Different types of transactions require more gas. Therefore, the cost of bidding for NFTs in auctions, trading on decentralized exchanges, or sending ETH to someone may not be the same because the complexity of these transactions is different. In other words, if you drive across the country, you will spend more on fuel than if you just travel across the city—regardless of the price of gasoline per gallon. Just like actual fuel, the price of Ethereum gas will increase or decrease based on demand. When many people use the Internet, the price increases.

The recent sharp drop in Ethereum transaction fees may be mainly due to the following three reasons:

1. Since late April, some Ethereum expansion solutions have made good progress, such as Polygon and Arbitrum. Polygon is the side chain scalability protocol of Ethereum. It has gained momentum in the past few months and has been approved by AAVE. Adopted with other DeFi protocols; Arbitrum was launched at the end of May this year, and it uses Optimistic Rollups to achieve network scalability. As more and more transactions turn to these scalability solutions, it will help eliminate congestion problems on Ethereum and further reduce gas prices.

2. Also starting in late April, the gas limit of Ethereum has been increased to 15,000,000, which means that more transaction operations can be performed in each block, which helps to alleviate congestion.

3. Flashbots is helping DeFi arbitrage robots not directly trade on the Ethereum blockchain. With the rise of decentralized exchanges (DEX) such as Uniswap, arbitrage robots have become “main contributors” to high gas costs. Since DEX transactions can be viewed in the memory pool and on the chain, the robot will monitor incoming transactions and then try to make arbitrage or other profit opportunities in advance. For this type of transaction, transaction timing is critical, so these robots are usually willing to pay extremely high gas prices in an attempt to give a higher price than their counterparty and prioritize their own transactions. But now, Flashbots has begun to transfer this bidding process to the parachain and smoothly separated from the Ethereum main chain, which obviously helps to reduce the gas cost competition on the Ethereum blockchain and lower the overall gas price.

The last thing to pay attention to is the Ethereum “London” upgrade coming on August 4th, because in this upgrade, the Ethereum blockchain will deploy the EIP-1559 improvement proposal, which means that the Ethereum blockchain network The transaction costs consumed will also be greatly reduced.

The biggest change that EIP-1559 brings to the Ethereum blockchain is that the price will be automatically calculated based on the demand for block space, instead of determining transaction fees through a process similar to blind auctions. All users must pay the basic price in order to process their transactions, and the basic transaction fees will be destroyed instead of directly handed over to the miners. After the implementation of EIP-1559, Ethereum miners will only receive block rewards and miner tips. It is important to know that in the past, miners can get block rewards and all gas fees. Therefore, this improvement proposal will have a huge impact on miners, but reduce GAS The fee is beneficial to the users of Ethereum. They don’t have to pay too much to the miners, making ETH more scarce, and then further increasing the price of ETH.

According to the latest news, the EIP-1559 code has been successfully deployed to three test nets.

So far, both Ethereum and Bitcoin transaction fees have dropped significantly, but the two “decline patterns” are different. Can this trend of general cost reduction continue? Let us wait and see.

Part of this article is compiled from decrypt

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/bitcoin-and-ethereum-transaction-costs-have-dropped-and-we-have-found-these-main-reasons/
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