Ethereum transaction fees are once again hitting highs last seen since May 2022. This development has raised concerns about the impact on usage of the Ethereum network and its native cryptocurrency, ETH.
The second largest cryptocurrency by market capitalization, Ethereum is a leading decentralized finance (DeFi) and non-fungible token (NFT) platform. The network has been experiencing a spike in activity due to the growing popularity of memecoins like PEPE, which has caused the fees to increase.
Rising transaction fees: a cause for concern
On May 2, the average average transaction fee on the Ethereum network skyrocketed to around 87 gwei, according to dune analysis. This rise was primarily attributed to increased on-chain activity around memecoin trading, according to Hildobby, a pseudonymous data researcher at venture capital firm Dragonfly.
Memecoins, like the Pepe the Frog-themed token, have enjoyed a renaissance recently, with the token’s price skyrocketing more than 266 times in just four days in April. The memecoin’s market capitalization rose to over $500 million this week before dipping back below $400 million.
while this increased activity may indicate a growing interest in the cryptocurrency market, it also highlights concerns about network scalability and the impact of increased fees on users. High transaction fees may discourage users from interacting with decentralized applications on the Ethereum network; as fees rise, smaller users are locked out of the platform and its apps.
In particular, the increase in memecoin trading activity, which increased the number of transactions on the Ethereum network, leading to an increase in fees, has also seen decentralized exchanges (DEXs) on Ethereum experience the highest level of users since 2021.
dune analysis data shows that Ethereum-based DEXs saw a surge in volume, with total trading volume on these platforms surpassing $63 billion in April alone. This represents a significant increase from March, when total trading volume was around $31 billion.
What this means for ETH
It is worth noting that the increasing transaction fees on the Ethereum network are seen as a downside to the value of ETH, as users can search for alternative blockchains with lower transaction costs. An example of this is the growing interest in other L1 blockchains such as Solana (SOL), Cardano (ADA)Fantom (FTM), etc.
However, Ethereum co-founder Vitalik Buterin recently suggested that the network could quickly scale up to 100,000 transactions per second. This could help alleviate network scalability issues and lower transaction fees.
Regardless, the increase in activity may be a positive sign of growing interest in the crypto market; but it has a marked expensive price. The increase in fees could discourage smaller transactions and lead to decreased demand for ETH.
With Ethereum scalability improvements in the works, it remains to be seen how the network will evolve in the coming months. Meanwhile, ETH price has decreased by 0.4% after a possible increase in trade above $2,000last month.
ETH is currently trading at $1,872 at the time of writing. ETH has a low of 24 of $1,855 and a high of 24 of $1,919, according to data from CoinMarketCap. Regardless of the market crash, the trading volume of the asset has only hovered between $8 billion and $9 billion in the past two weeks.
Featured Image from Shutterstock, Chart from TradingView
