Ethereum's Gas Fees At Major Low Amid Reduced Activity
13 October 2023
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The average Ethereum gas fee, a cost associated with transactions, has dropped to a record low.
On October 8, it fell to 8.8 Gwei, a unit measurement for gas prices, a level not seen since October 2, 2022.
This decline is due to decreased users on various platforms, including decentralized finance (DeFi) applications, non-fungible tokens (NFTs), layer-2 networks, and Telegram bots.
Trading volume for NFTs, digital assets representing real-world objects, has sunk to a two-year low.
On a related note, the amount of Ethereum burned or permanently removed from circulation reached its lowest point for the year on Monday, with only 7,084 ETH (Ethereum's native token), being burnt.
The last time Ethereum experienced such minimal burn levels was following the Ethereum Merge update, which introduced the burning mechanism.
Right now, Ethereum’s supply is growing at a rate of about 1,450 ETH daily, or $2.2 million worth of Ethereum.
This results in an annual inflation rate of 0.44%, marking the first time Ethereum turned inflationary since the start of September 2023, as gas fees took a nosedive. Read more here.
What Are Ethereum Gas Fees?
Ethereum gas fees are vital costs for transactions and contracts on the Ethereum blockchain, affecting transaction speed and cost.
Serving to incentivize miners through a proof-of-work system, allocate computational resources, and deter spam attacks, these fees are determined by multiplying a user-defined gas price with the required computational work.
Factors such as network congestion, gas price auctions, and smart contract complexity can influence these fees.
Despite historical fluctuations in gas fees, the ongoing transition to Ethereum 2.0 aims to create a more scalable and cost-effective system in the future. Read more here.
Bitcoin fees surge from BRC-20 token NFT inscriptions.
High US concentration of Ethereum nodes raises decentralization concerns.
No-Fee Advantage: A Zucoins Upside For User Engagement
While the reduced usage of Ethereum is in part a reflection of the overall slowing global economy, due to higher costs of living and international interest rate rises, the devil is in the details.
So let's dive in.
A key takeaway from Ethereum's recent history is the impact of transaction fees on user activity.
Zucoins, with its no-fee model, offers a distinct advantage in this area.
By eliminating fees entirely, Zucoins removes a significant barrier to entry and enables more users to participate in the network without concern for cost.
It also removes spikes in fees during high volume periods, which has caused numerous problems before.
This approach could help maintain steady activity and engagement on the network, by making it economically viable for users to continue transacting and using Splitchain.
The decline in Ethereum's NFT trading volume underscores the volatility of the crypto market and the need for diversification away from its speculative trading core.
While NFTs have been a significant driver of Ethereum's growth in recent years, the current slump highlights the risks of over-reliance on a single sector.
In contrast, our aim here at MyZucoins is to help sub-communities apply Splitchain to real-world use cases, as we regularly cover here.
It'd provide a balanced ecosystem where different sectors can thrive independently.
By nurturing a diverse range of use cases, Splitchain can maintain a robust and resilient network less susceptible to downturns in any area.
Another interesting observation from Ethereum's experience is the reduced activity on layer-2 networks.
These networks, designed for scalability and lower fees, have seen a decrease in consumption for the first time since last year.
This raises questions about the long-term sustainability of such solutions.
Most of these layer-2 solutions are actually centrally managed by a core company.
As these layer-2 solutions often group several chunks of data together, so that less gets sent back to the slower blockchain network (the "layer-1"), this creates a huge dependency on a small number of companies to maintain responsibility for that data.
If these layer-2 companies shut down, then there's a good chance the data they hold, as an intermediate processor, could go down with it—that data could become lost forever. A major issue for KYC and anti-money laundering proofs, amongst many other issues.
Splitchain's ground-up, layer-one solution, on the other hand, offers a more sustainable approach.
By ensuring efficient data processing and caching at the foundational level—its layer 1 equivalent, Splitchain eliminates the need for additional layers, providing a more reliable and consistent user experience.
Finally, Ethereum's shift to an inflationary model as gas fees plummeted highlights the complex interplay between network fees, coin supply, and value.
Zucoins' decision to cap its supply at 100 million counters many kinds of inflationary pressures.
Unlike Ethereum's network, no new coins are continually gifted for completing validation work on the network.
Splitchain has a very, very different incentive structure to maintain the network's safety that'll be covered in a future newsletter, so make sure you're subscribed.
Moreover, the truth-based network, which relies on nodes caching data rather than a consensus mechanism, offers a more stable and reliable network structure.
This, combined with the two-way transaction model, can enhance trust and confidence in the network, helping it to weather market fluctuations and maintain its value proposition to users.
These are just a handful of ways that Zucoins and Splitchain are aiming to solve many of the outstanding issues with traditional blockchains.
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All the best,
Peter & Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.