The biggest issues faced by ETH traders and investors that they have complained about are the gas charges. Ethereum charges a lot of GWEI, the unit for measuring the energy consumed, as gas fees for the transfer of digital assets, and has led to many traders bitterly demanding a blockchain upgrade.
The main difference between PoW and PoS is that PoW (proof of work) uses a lot of energy for miners to create and approve new blocks, while PoS( proof of stake) uses less energy.
While the call for a reduction in Ethereum gas fees has been high, there are concerns, however, that the recent all-time low Ethereum gas price might not be the good news many would have thought. It is instead a reflection of the falling price of ETH, the native currency of the Ethereum blockchain, and the drop in enthusiasm in NFT and Defi.
In this article, I’ll share why reducing Ethereum gas fees isn’t a thing to be happy about – if you’re a trader – but something to make you question just how long the Ethereum floor price of $2900 can hold. Should we be scared that the second-largest cryptocurrency, based on market capitalization, might lose its place at the top of the food chain of altcoins? Do we lose sleep that Ethereum might, even after migrating completely to PoW, lose its price, and wipe many investors out?
Although the last concern is faint and doesn’t look like it’ll happen, we should be careful in the market. The growing number of platforms that offer some, if not all, of the development features that Ethereum offers, makes for a valid reason to worry.
Ethereum gas fees are basically the fuel that permits ETH dealings between buyers and sellers to occur on the blockchain.
For every transfer on Ethereum’s crypto space to be completed, some complex computational processes must be executed. The execution of these processes requires a fee, referred to as gas. Therefore, gas charges are the fees you pay for these digital transactions to be carried out.
Why Ethereum Gas Fees have Significantly Reduced Over Time?
Although the gas fees are now low, they’re not as low as many would expect. However, many traders haven’t forgotten so fast when Ethereum gas fees were still super high. Those were the days when Ethereum was still operating solely on Proof of Work. Now, Ethereum partly operates on Proof of State, PoS, and this happened after the London Upgrade, also known as the London Hard Fork, that happened in August 2021.
Who Gets The Gas Fees
The gas fees are paid to the miners, people who verify these transfers, on the Ethereum network. These miners use high amounts of energy to complete these transactions.
Ethereum gas fees are high due to the high price of Ether.
What this means is if you want to transfer your Ethereum on https://redot.com to another wallet, whether it’s a desktop wallet or cold storage, you’ll need to pay a pretty high amount of Ethereum.
Why Did Gas Fees Hit an All-Time Low?
Last year saw the boom in NFTs and Defi. A lot of people got into the NFT space, minting visual arts, music, and every form of valuable creative work on the Ethereum blockchain. The number of NFTs sold on secondary markets daily was in the millions of dollars.
And the gas fees were high at the time.
The high gas fees also coincided with the price of Ethereum hitting an all-time high of $4900.
However, at the time of writing this article, the price of Ethereum is $2900, and the average gas price on Ethereum is 30gwei, which is $1.35.
That is pretty low.
So, Why did Ethereum Gas Fees Reduce so Badly?
Many reasons exist, but the three major reasons are:
1 The fall in the value of Ethereum
It is only common knowledge that when the price of a currency falls, the amount of goods it can purchase reduces. The Gwei is the price, instead of eth, that gas fees are paid in. One Gwei is 10-9 ETH. Therefore, rather than saying gas fees are in 0.0000000001 E, just say 1 Gwei.
In that same vein, because the price of Ethereum has fallen, the price of 1 Gwei, for example, is reduced when you convert to dollars.
That is just one of the popular reasons why gas fees are low. The two other reasons are the major cause of the low Ethereum gas fees.
2. Lowered Interest in NFTs
The NFT craze seems to be dying down a bit. This isn’t saying that people aren’t minting and selling NFTs anymore. Far from that. They still do.
But the average NFT sale on secondary Decentralised marketplaces such as OpenSea and LooksRare have reduced drastically. The volume of NFT traded on OpenSea has reduced by 34.5% over the last three months.
This waning interest in NFT has put a dent in the enthusiasm people had for Ethereum.
3. Reduced Interest in Decentralised Finance
People aren’t as interested in DeFi as they were in 2021. Many DeFi projects, it seems, over the last three months, have undergone a period of loss on the Total Value staked.
A report from crypto staking data revealed that Ethereum isn’t leading the way in the proof-of-stake network for the amount of staking done on the Ethereum network.
The report says Terra Luna now has surpassed Ethereum in the total token stake. Terra is at $26billion while Ethereum is $24billion. Terra Luna also had more people staking on the network.
Although Ethereum is still the second crypto based on market capitalization, there are fears that the development of other PoS networks will eventually knock them off the perch. While Ethereum might still remain in the second position, if the planned upgrade to complete PoS isn’t done soon, the network might lose out.
Different networks are being developed for nearly the same reasons as Ethereum: NFTs and DeFi. And these networks require lower gas charges but have faster transaction rates than Ethereum. It is either Ethereum fully moves to PoS or they’re overtaken by more secure and less expensive networks.