Coin Metrics says that Ethereum gas prices actually started falling before the price of ETH.
ETH’s price is not the only thing that has been falling in recent months. The cost to use the Ethereum network has also decreased.
The average gas price in the Ethereum block chain is at its lowest since March 2020, according to a report released today by market research firm Crypto Coin Metrics.
Gas refers to the transaction fee in Ethereum, and is currently in the range of 15-30 gwei. That figure dropped about 10 times compared to April, when transaction fees soared to double-digit dollars as the price of ETH soared.
A gwei is a fraction of an ETH (0.000000001 ETH) and also a fraction of a penny. But if gas prices are so low, why does it currently cost an average of $8.15 for transactions?
This is because the two metrics are related but distinct. Transaction fees are determined by taking the price of gas and multiplying it by the amount of gas used. Different types of transactions require more gas to be used. Therefore, bidding on an auctioned NFT, making a trade on a decentralized exchange, or sending someone ETH can have potentially variable costs because these transactions differ in complexity.
To put it another way, you’ll spend more on fuel if you’re driving across the country than just driving across town – no matter the price of gas per gallon.
The price of gas declined as grid congestion eased
And just like real fuel, gas prices rise or fall depending on demand. When many people are using the net, prices go up.
According to Coin Metrics, this is part of what’s happening here, as projects are increasingly using “scalability solutions” like Polygon and Arbitrum, which take some of the weight off Ethereum and still leverage it. .
But there are two other factors, says Coin Metrics.
First, gas prices began to fall in late April – “well before the crash” in ETH’s price from a record $4,165 to the current $2,335 – after the gas cap was raised from 12.5 million to 15 million gwei per block. The result of the change was that more transactions could be placed in each block, easing demand.
Second, arbitrage bots seeking to profit from decentralized foreign exchange transactions have traditionally raised fees – they will voluntarily pay higher gas prices to carry these transactions forward, because they can gain a lot from the trade. But this activity is also being moved from the Ethereum block chain to parallel chains, which are like the alleys of the Ethereum freeway.
But don’t get too used to it. Ethereum gas and rates should adjust again in August 4 with the “London” update.