Ethereum miner fees fall 60% after this week's crash, but network remains congested

One good thing that came from the Ethereum price crash this week is that Ethereum miners’ revenue has started to drop significantly, and transaction fees are much cheaper than before the crash.

According to BitInfoCharts, the average Ethereum transaction fee reached $14.5 on Wednesday. This is the highest average cost of Ethereum transactions since 2018.

(For reference, when people want to move funds to a different wallet or use it in a different protocol, they have to pay transaction fees on Ethereum. This means the average cost of doing so is $14.5).

But then, the price of Ethereum, the second-largest cryptocurrency by market value, fell from $487 on Wednesday to $380 on Friday, a drop of more than 20%. As the average transaction fee fell, miners fell below $6 last Friday, a drop of 60%.

Note that Ethereum’s collapse is not entirely consistent with transaction fees. Ethereum’s price continued to fall today to $317, 19% lower than last Friday’s drop. But the average cost of an Ethereum transaction rose slightly, reaching $7.6 yesterday.

The news of falling fees does not mean that the network is no longer congested or that the number of users is decreasing. Even if the rest of the week is considered an outlier, yesterday’s average Ethereum transaction fee of $7.6 would still be the highest since 2018.

These ultra-high transaction fees are partly due to increased activity on Ethereum. Since the rise of DeFi (or decentralized finance) this summer, interest in DEFi tokens has continued to grow. This type of decentralized finance does not have custodial financial services, such as loans and equity, which are all completed on decentralized exchanges. Since June, investors have invested $8 billion in its smart contracts.

Today, almost all major DeFi protocols run on the Ethereum chain - hence the increase in Ethereum activity.

But because of Ethereum’s explosion, these transaction fees are incredibly high. Network utilization has been hovering around 96%, and if utilization remains high, the network will become clogged and unusable. Scaling solutions are in the works, and Ethereum 2.0, an upgrade to the blockchain that will significantly increase its capacity, is set to launch later this year.