In recent weeks, the cryptocurrency market has seen a significant drop in transaction costs on both the Bitcoin and Ethereum networks. The change, which has brought transaction fees to levels not seen since 2020, has sparked interest and questions among investors and blockchain enthusiasts. What caused these changes, and why did the costs of the BTC and ETH networks drop at virtually the same time?
Bitcoin Transaction Costs in 2023-2024
Bitcoin, as the first cryptocurrency, has been attracting the attention of both individual investors and institutions for years. The transaction costs in the Bitcoin network depend on many factors, such as the demand for transactions and the overall activity of the network.
At the end of 2023, transaction fees on the BTC network did not exceed an average of $1-2. An exception to this rule occurred in May 2023, when the Ordinals protocol was introduced, allowing NFTs to be minted on the Bitcoin blockchain. At that time, the price of a transaction on the Bitcoin network rose to over $30. However, this situation normalized within a few weeks. The end of 2023 was a huge media hype around the introduction of BTC ETF spot funds.
Satoshi Nakamoto’s interest in the cryptocurrency caused the transaction costs in the BTC network to increase dramatically. In January 2024, when the BTC craze exploded in full, transaction costs rose to over $ 37. The next peak was April 2024, i.e. halving. It was also in April that the Runes protocol was introduced, which also allows the creation of NFTs and memecoins based on the Bitcoin network. At that time, transaction costs rose to sky-high levels of even over $ 127!
Why the decline and levels not seen since 2020?
While the spot BTC ETF craze has slowly begun to calm down as 2024 progresses, BTC transaction prices have continued to hover around $7-10. The German government’s sell-off of its BTC triggered a complete change in this trend. Combined with Mt.Mox’s announcement that it would repay its digital asset debt, this caused panic in the cryptocurrency market, which saw BTC prices drop below $60,000 and transaction costs drop to $1.4, prices not seen since 2020.
Ethereum Transaction Costs
Ethereum, the second largest cryptocurrency, offers more advanced capabilities thanks to smart contracts. Transaction costs on this network, also known as “gas fees,” can be more volatile and often higher compared to Bitcoin. In the case of the ETH network, transaction costs have been high since the first months of 2023. The considerable interest in the cryptocurrency and Vitalik Buterin’s network has caused these costs to increase from $2-3 to over $27 per transaction. 2024 also did not bring much improvement, as in April the gas fee was as much as $30. However, the price chart shows a significant change after the introduction of the Dencun update, which was the announced remedy for high gas fees.
Why Have Ethereum Transaction Fees Not Dropped to Record Lows?
While the reduction in NFT activity, protocol optimizations (introduction of EIP-1559), increased adoption of scaling solutions like rollups, and the Duncan update have significantly reduced transaction costs, they are not at the level of 2022. While the record lows of $2 per transaction in 2023 seem within reach of crypto wallets, recent weeks have seen another increase in fees. As of this writing, the average transaction fee on the Ethereum network is 0.0014 ETH, or $4.82.
Bitcoin vs Ethereum Comparison
Why do Bitcoin and Ethereum transaction costs differ so much? Comparing transaction costs between Bitcoin and Ethereum is complicated by the different operating mechanisms of the two networks. However, a few key differences can be noted:
- Fee mechanism: Bitcoin is based on a simple fee structure based on the size of the transaction in bytes, while Ethereum uses a more complex “gas” system that depends on the complexity of the operations performed by the transaction.
- Fee Variability: Ethereum transaction costs are more volatile due to the variety of use cases (e.g. transactions, smart contracts, NFTs), while Bitcoin fees are more stable, dominated by simpler value transfers.
- Scalability optimizations: Ethereum has been aggressively implementing scaling solutions such as rollups to reduce transaction costs, while Bitcoin relies heavily on second-layer development like the Lightning Network to reduce the load on the main chain.
What does the future bring?
The recent decline in transaction costs on both the Bitcoin and Ethereum networks is a positive development for users of both cryptocurrencies. Both ecosystems are constantly evolving, introducing innovations to improve efficiency and reduce costs. What’s next? The future of transaction costs on both networks will depend on further technological developments and changes in market dynamics. Observing these trends is crucial to understanding and effectively using cryptocurrencies.
