Why Ethereum fees are falling and is it a good thing.

The recent market downturn has hurt crypto markets, with Ether down 36% from its November high at the time of writing. However, perhaps more prominent were the impacts on network activity, such as transaction fees, decentralized finance (DeFi) trading volume, and borrowing rates between lenders.

Ethereum and ERC-20 simple wallet transfers are included in blocks at a fraction of the cost seen in December and January. While this is a more computationally intensive form of transaction compared to wallet transfers, here is a user exchanging one asset for another paying as little as 0.0064 ETH ($20.04) in transaction fees. A similar transaction last March cost another user 0.04 ETH ($125.18), more than six times more than the February 15 transaction. It's certainly not an apples-to-apples comparison, with contracts becoming more efficient with gas flow and varying levels of activity throughout the day, but studying it can demonstrate how much transaction costs have fallen.

Since EIP 1559 was activated in early August 2021, each block now has a set base fee that must be paid in Ether to be included in a block. To prevent volatility in these base fees, they can only be adjusted up or down by 12.5% after each block, depending on whether the previous block was above or below the gas target set by the Ethereum core developers.

The base fee paid for each transaction is sent to the burning address, a mechanism that allows its own asset, ether, to practically behave like gas in a car. More importantly, burning counteracts block reward inflation and helps maintain the longevity of both the Ethereum network and its own asset.

By reducing fee volatility, the network shielded itself from transaction fees being sent through the roof for a short period of minta NFT tokens or token launches. However, the same is true vice versa, and it can take weeks at a time for transaction fees to drop significantly during longer periods of low activity.

The charts below highlight this muted volatility, but also show the month-to-month drop in gas prices and daily transactions that have been on a downward trend since last November. The big impact on the network is the reduction in incineration fees and the increase in ether inflation, which has only been seen to this extent twice since the implementation of EIP 1559.

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I think that any cryptocurrency is extremely unstable and therefore there is a risk. I advise you to weigh the pros and cons before you start trading crypto. Maybe it will be useful for you to read about the basics of trading on https://www.finance-monthly.com/2021/12/us-forex-brokers-how-to-select-best-trading-platform-for-us-forex-traders/. There is a lot of useful information for beginners.

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