In brief

  • Ethereum's average transaction fee fell by 58% on Friday.
  • It since has slightly increased.
  • Scaling solutions are in the works.

If there's one good thing that came out of this week's Ethereum price crash—aside from its rebound today—it's that Ethereum's transaction fees plummeted.

On Wednesday, the average transaction fee on Ethereum hit $14.5, per data from BitInfoCharts. That's the highest average cost of an Ethereum transaction since 2018.

(For reference, people must pay transaction fees on Ethereum whenever they want to move money around to different wallets, or use it in different protocols. This means that the average cost of doing so is $14.5).

But then the price of Ethereum, the second-largest cryptocurrency by market cap, crashed, from $487 on Wednesday to $390 on Friday, a decline of 20%. Along tumbled its average transaction fee, which collapsed to $6.1 on Friday, a drop of 58%.

Note that Ethereum's crash doesn't quite coincide with the transaction fee. The price of Ethereum continued to fall to $317 today—19% lower than its Friday ebb. But the average cost of an Ethereum transaction increased slightly, to $7.6 yesterday.

And the news that fees have fallen isn't...great. Even if the rest of this week were counted as an outlier, yesterday's average Ethereum transaction fee, $7.6, would still be its highest since 2018.

In part, these super-high transaction fees are due to the increased activity on Ethereum. Interest in the coin has grown since this summer's rise of DeFi, or decentralized finance—non-custodial financial services like loans, synthetic stocks and decentralized exchanges. Investors have poured $8 billion into its smarts contracts since June.

Pretty much all of the major DeFi protocols these days live on Ethereum—hence the increased activity.

But these transaction fees are also incredibly high because Ethereum is fit to burst. Network utilization hovers around 96%—should it get much higher, the network will clog up and become unusable. Scaling solutions are in the works and Ethereum 2.0, an upgrade to the blockchain that will vastly increase its capacity, is due to go out later this year.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.