TL;DR
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Ethereum network fees rose 270% last week.
Which is straight up BONKERS, but we have a theory on why this happened.
First things first though:
A refresher — Ethereum uses ‘gas fees’ to compensate folks for verifying transactions on its network. So each time you buy/sell Ethereum, a fee will be associated with the transaction.
Now, why the heck did they rise 270%?!
Honestly, we aren’t entirely sure, but we have some ideas:
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Transfer Volume: Over the past week, the total volume of ETH moving on-chain jumped 159%. Which is nuts.
But, what needs to be noted here — average transaction fees are not related to the amount of ETH being moved in a single transaction — they’re the same regardless of the transaction’s total value…
Which brings us to point #2:
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ETH Market Value: ETH’s market value jumped 9% last week which could have boosted the network’s total earnings and caused the jump in transaction costs.
(Cause when demand goes up, you can charge more for fees). Which segues nicely into point #3…
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The Burn Rate: With every Ethereum transaction, there is a set amount of ETH burned/destroyed.
Last week – base fees spiked all of a sudden, pushing more ETH to be burned and taken out of circulation.
(This helps helps to keep ETH scarce, and push its value up over time).
And it looks like we witnessed a perfect storm of those three factors:
A quick increase in ETH transactions + an increase in Ethereum’s value + a decrease in supply = higher prices (and higher fees).
Ah, good ol’ economics.
