May 29, 2024
Ethereum Becomes Inflationary as Gas Fees Hit 2023 Lows
Latest Cryptocurrency News

Ethereum Becomes Inflationary as Gas Fees Hit 2023 Lows

Ethereum, the second-largest cryptocurrency by market capitalization, has seen a noteworthy drop in transaction fees, marking levels reminiscent of 2022. This decline is primarily linked to reduced on-chain activity, including NFT sales, meme coin trading, and the waning popularity of Telegram bots. The current average fee for Ethereum transfers has dipped to $1.83, while the cost of conducting token exchanges through Uniswap hovers around $4.17, as reported by Etherscan data. These fee levels haven’t been witnessed since November of the previous year when FTX faced a significant setback.

As the demand for gas (transaction processing power) on the Ethereum network subsides, the cryptocurrency has experienced an unexpected shift towards inflation. This occurrence is quite unusual and represents one of the few instances since the Ethereum Merge in September 2022. Over the past week, Ethereum’s overall supply has grown by 4,092 ETH tokens, equivalent to approximately $6.6 million in value.

This increase in supply is a direct result of the network’s inflationary phase. Ethereum’s on-chain activity had surged at the beginning of 2023, driven by a notable spike in NFT trading volumes, partly fueled by the fervor surrounding the Blur token airdrop. Additionally, the rising price of Ethereum contributed to increased network usage. The rate at which Ethereum tokens were being burned had also accelerated during the meme coin craze in the second quarter of the year.

However, Ethereum’s supply has plateaued since then, coinciding with a cooling off of on-chain activity, with only a marginal uptick noted in September. This development underscores the intricate relationship between transaction fees, on-chain activity, and the overall state of the Ethereum network. While lower transaction fees are generally welcomed by users, the shift towards inflation raises questions about the cryptocurrency’s long-term economic dynamics. Ethereum’s journey continues as it navigates the balance between scalability and network security, and addresses the implications of fluctuating transaction fees on its overall economic model.

Image by motoviurii on Freepik

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