Ethereum Transaction Fees Hit 6-Month Low

The cost to transfer Ether or a non-fungible token hasn't been this cheap in months.

While U.S. consumers are feeling pain at the pump to gas up their cars, cryptocurrency traders are feeling relief as Ethereum (ETH) "gas" fees per transaction are at their lowest levels in months.

Explaining Ethereum gas fees

Every time an operation occurs on Ethereum's network, a transaction fee -- also known as a gas fee to help speed the transaction along -- is incurred. That's because every interaction on the Ethereum blockchain demands a certain amount of computational resources from the network.

Based on the complexity of the transaction and how quickly the user wants the transaction settled, the gas fee changes. The more complex and faster the transaction the more it will cost. For example, a basic wallet-to-wallet transfer is a simple and low-cost operation, while heavier computational tasks such as token swaps or minting non-fungible tokens (NFTs) require more resources and bandwidth -- thereby higher fees.

Ethereum has had historically high gas fees since last summer

During the middle of 2021, transaction fees on the ETH network had spiked as much as 470% compared with earlier in the year due to congestion on the network from the Dogecoin craze and NFT mania at the time.

According to a report from Arcane Research issued this week, the mean transaction fee was above $50 on many days last year, while the cost of making more complicated token swaps was well over $200. Arcane now estimates the price of a token swap on Ethereum to be around $15. It hasn't been this low since August 2021.

This gas fee decline is even lower according to Etherscan.io, which tracks the actual activity across the ETH network. At the time of writing, that tracking website shows the ETH transaction fee for a basic transaction is only $2.51.

Reasons driving down Ethereum gas fees

There are likely several contributing factors to the lower usage of the Ethereum network and the corresponding drop in fees. One of the most popular drivers of volume on that network for more than a year has been for decentralized finance (DeFi) activity. When DeFi initially launched, Ethereum had more than 90% share of the traffic. According to DeFi Llama, the DeFi dominance of the ETH blockchain is waning. Users have been moving transactions to other blockchains with cheaper fees as seen in their share below of the current DeFi market:

• Ethereum: 54%
• Terra: 13%
• Binance Smart Chain: 6.0%
• Avalanche: 5.5%
• All others: 22%

Additionally, there are other networks -- called "Layer 2" (L2) solutions -- that actually run on Ethereum's "Layer 1" blockchain. Because L2 networks don't have the same maintenance costs as the foundational blockchain, those L2 platforms charge much less. As of this writing, here are the current transaction fees for some of the cheapest L2 processing fees according to the L2fees.info website:

• Loopring: $0.05
• ZKSync: $0.07
• Polygon Hermez: $0.25
• Optimism: $0.25

Lastly, as Ethereum developers continue to upgrade the network under its ETH2.0 development plan, the ETH blockchain will soon be able to handle transactions per second of more than 100,000, which will further reduce network backups, transaction costs, and settlement delays.

NFT sales continue to be strong

Some media outlets are reporting that a drop in NFT transactions is a reason for the drop in ETH gas fees, but that doesn't seem to be the case. If you look at the last 30 days of activity on the definitive site for NFT metrics -- NonFungible.com -- the number of NFT sales is up more than 565%, sales revenue is up 231%, and active wallets are up 280%.

While not financial advice, and keeping in mind that you should always do your own research and only invest what you can comfortably afford to lose, if you're looking to buy your first NFT you can save a lot on transaction fees right now.