TL; DR
Full story
Ethereum network fees rose 270% last week.
That’s downright BONKERS, but we have a theory as to why this happened.
But first things first:
Just a refresher: Ethereum uses “gas fees” to compensate people for verifying transactions on its network. So every time you buy/sell Ethereum, there are fees associated with the transaction.
Why on earth are they up 270%?!
To be honest, we’re not entirely sure, but we have some ideas:
-
Transfer volume: Over the past week, the total volume of ETH moving on-chain has increased by 159%. Thats crazy.
But what should be noted here – average transaction fees are not related to the amount of ETH moved in a single transaction – they are the same regardless of the total value of the transaction…
Which brings us to point #2:
-
ETH market value: ETH’s market value rose 9% last week, which could have increased the network’s overall revenue and caused the increase in transaction fees.
(Because if demand increases, you can charge more). Which ties in nicely with point #3…
-
The burning speed: With each Ethereum transaction, a certain amount of ETH is burned/destroyed.
Last week, base fees suddenly rose, causing more ETH to be burned and taken out of circulation.
(This helps keep ETH scarce and increases its value over time).
And it seems we’ve witnessed a perfect storm of these three factors:
A rapid increase in ETH transactions + an increase in the value of Ethereum + a decrease in supply = higher prices (and higher fees).
Ah, good old economics.
