CoinDesk report:
Author: Robert D. Knight, CoinTelegraph; Translation: Baishui,
Bitcoin and Ethereum users looking to transfer funds can take advantage of the low fees in both ecosystems. On June 23, the average Bitcoin transaction fee hit an eight-month low of $1.93. On June 22, Ethereum’s average transaction fee of $0.70 was notably lower compared to its peak of $2.50 in March.
Vitali Dervoed, CEO and co-founder of decentralized exchange Spark, highlighted, “The significant drop in Bitcoin transaction fees is largely attributed to reduced network congestion and adjustments in mining activity following the recent halving event.” With a decade of experience in various financial institutions including banks, fintech, and DeFi, Dervoed noted that this decline wasn’t particularly surprising.
“As miners adapt to lower profitability, halvings typically lead to a temporary reduction in mining activity. This reduction can alleviate competition for block space, thereby lowering fees,” he said.
Justin d’Anethan, APAC Business Development Director at cryptocurrency market maker Keyrock, pointed out other factors contributing to fee reductions.
“In recent months, there has been a significant increase in transaction volume post-Ordinals and rune engravings, though speculation seems to have slowed down, if not subsided,” d’Anethan said.
Data scientist Carlos Mercado from blockchain data firm Flipside Crypto also highlighted Ordinals as a contributing factor.
“Following the halving, there was a short-term surge in on-chain BTC activity and fees. However, overall, the narrative around Ordinals and Bitcoin engravings has been cyclic,” he said.
Mixed news for Bitcoin miners
While fee reductions may be positive for users, they present challenges for miners.
Mercado noted, “Bitcoin fees are compensating for lost block rewards.”
“For the long term, to maintain Bitcoin’s security, miners performing proof-of-work must be able to recoup their real-world electricity/computational costs. Due to halving, their income halves overnight, and the only way to compensate for losses is higher prices or more fee income,” he added.
D’Anethan echoed similar sentiments in his analysis. While fee fluctuations have minimal direct impact on Keyrock, others may feel financially strained.
“From our perspective, these low fees are neither positive nor negative,” he said. “Bitcoin remains… Miners certainly feel the pinch as the impact of halving is mitigated over time by increased transaction volumes.”
D’Anethan noted the tangible outcomes.
“We do see some miners selling Bitcoin, possibly to offset declining revenue and meet fee obligations,” he said.
Ethereum fees
While Bitcoin’s low transaction fees correlate with halving events and reduced demand from Ordinals, Ethereum’s low transaction fees are tied to the March Dencun update.
“Ethereum has been plagued by anomalous but distinct dynamics. If more people want to use the network, it becomes more expensive, reducing the number of people who want to use it, which in turn makes it cheaper,” d’Anethan added.
According to d’Anethan, as Ethereum hopes, most of the traffic it carries has now shifted to Arbitrum, Optimism, and Base.
“Dencun’s upgrade aims to address this issue by making Layer 2 activities cheaper… But this has already driven users away,” he said.
“This is ultimately positive as it makes on-chain activities cheaper and more accessible. Of course, the numerous chains on Ethereum also bring challenges, risks, and costs.”
Dervoed agrees that the shift to Layer 2 solutions is reducing Ethereum fees.
“The decline in Ethereum fees is primarily due to increasing adoption of L2 solutions like Optimistic and zero-knowledge aggregation. As most complex operations and derivative trading move to these L2 platforms, Ethereum’s main chain becomes leaner for basic transactions, thereby reducing costs,” Dervoed said.
Are low transaction fees good news?
Whether low fees are positive or negative often depends on perspective.
“Lower fees can be seen as a bullish signal for the ecosystem. The shift towards efficient L2 solutions marks significant progress for Ethereum in scalability and advanced technology roadmaps, making it a more adaptable framework for future applications,” Dervoed said.
There are different interpretations regarding the sustainability of this low fee environment.
“Due to changes in mining economics and network activity, the ecosystem may experience cyclical fluctuations. However, for Ethereum, with the growing adoption and development of Layer 2 solutions, low fees could persist, enhancing network capacity and efficiency without sacrificing security,” Dervoed added.
d’Anethan noted, “Without clear catalysts from the Bitcoin or Ethereum ecosystems, it’s hard to imagine transaction volumes and continuous fees rising significantly in any way.” He subsequently added, “Cryptocurrency remains a highly volatile and fast-paced industry. New memes, products, and speculations can emerge in an instant.”
Contrary viewpoint
While Dervoed and d’Anethan are largely optimistic about low fees, Mercado’s explanation is more pessimistic.
“The same trend for Bitcoin and Ethereum (L1 fees declining) can be said to have similar bearish interpretations,” Mercado said.
“BTC issues $27 million worth of BTC to miners daily, of which only about 5% matches direct [transaction] fees,” he told us.
He added that in the long term,
“What’s concerning here is that halving will continue until eventually [transaction] fees or prices must rise, otherwise miners will be forced to reduce proof-of-work… when their fiat currency-denominated electricity costs exceed their income.”
Mercado noted that on Ethereum, “Ethereum issues $8 million in staking rewards daily, with about 20% matching EIP-1559 burn and Blob burn. Occasionally, burning exceeds issuance, but not recently due to much of the activity being compressed on L2.”
For Mercado, this means issuance may often exceed burning, leading to “long-term inflation of ETH,” which in turn, due to Ethereum’s proof-of-stake consensus mechanism, “if consensus becomes more concentrated over time, it could lead to reduced security.”
