Ethereum Gas Fees is Reducing. But Why?

Ethereum blockchain is infamous for its exorbitant Gas Fees. But it is reducing gradually.

Ethereum is the originator of Decentralized Finance (DeFi). Numerous crypto projects are hosted on its network. That’s why the blockchain remains quite congested. This congestion drives up the cost to transact on the Ethereum blockchain.

The network is infamous for charging exorbitant Gas Fees for even small transactions.

However, the cost of a transaction has reduced in the past one year, courtesy of the EIP 1559 update or London upgrade.

This update brought 4 changes: adjustable block size, base Gas Fee, priority fee (tip) and max fee.

The Gas Fees are used to compensate the miners for providing computational resources.

Reduction in Ethereum Gas Price in Past 1 Year

You can observe that the number of transactions in February 2021 and February 2022 is roughly the same.

But, the Gas Fees charged has decreased substantially.

On February 15, 2021, the average Gas price charged was around 178 Gwei.

A year later on February 15, 2022, the average Gas price stands at 80 Gwei.

This is a reduction of around 50%.

Changes after EIP 1559 Deployment

A noteworthy change is that earlier the minimum Gas price used to be 0.000000001 Gwei.

After the deployment of EIP 1559, the minimum Gas price is a lot higher.

But it has reduced the volatility of the Gas price.

It is ensured by the mechanism that base fees can be either increased or decreased by only 12.5% after each block, depending on whether the previous block was above or below the Gas target.

The base fee would increase if the target block size is exceeded or decrease if the target is not met.

This prevents the spikes in Gas price; however, it also means that the Gas price may reduce gradually without a drastic decrease.

Other Possible Reasons for the Decrease

Another reason for Gas fee reduction could be the proliferation of Ethereum scaling solutions.

They also take the burden off the base layer.

Also, users and developers are exploring options other than Ethereum. According to data from Defi Llama, the Ethereum chain currently accounts for 59% of Total Value Locked (TVL) in all major chains.

Ethereum’s dominance on DeFi is gradually waning. A multichain cryptoverse could become a reality in the coming few years. At the same time, the development of hardware that can keep up with the computational demands of the burgeoning crypto industry will also play an important role in development of a multichain network.

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