It is widely recognized that cryptocurrencies are subject to volatility, which is no longer a surprising fact. The crypto winter of 2022 gave rise to various incidents and events that brought digital currencies to the forefront of discussions. As anticipated, much of the attention revolved around bitcoin (BTC) and ethereum (ETH), the two largest coins in terms of market capitalization.
While in the case of bitcoin, the focus was entirely on falling prices, Ethereum made headlines for several other reasons.
There are many resources on how to open an account on an exchange or how to buy ethereum. However, the most crucial step when getting into crypto is research. One should learn about the history and development of the project in order to understand its advantages and disadvantages and make informed business and investment decisions.
So the evolution of Ethereum in the last few months has been interesting. After undergoing its biggest upgrade since inception, known as the Merge, on September 15, 2022, Ethereum managed to complete the final step in the long-awaited transition from proof-of-work (POW) to proof-of-stake (POS). ) with its latest update, Shanghai, taking place on April 12, 2023.
Ethereum is back in the spotlight due to its rising gas fees that hit a 12-month high of 240 gwei on May 5; an increase most likely fueled by the buzz surrounding meme coins.
Ethereum Gas Fees Explained
For people who do not know the Ethereum network well, it is crucial to explain gas fees and their importance. Ethereum encompasses more than just a cryptocurrency that can be bought or traded on exchanges.
It is an open source decentralized blockchain platform with numerous use cases and applications, accompanied by its native currency called ether (ETH).
Although “Ethereum” and “Ether” are sometimes used interchangeably, they refer to different entities, which can lead to confusion.
Therefore, the Ethereum platform can be used to develop other crypto projects, carry out transactions, and execute smart contracts. However, to carry out these actions, users must pay certain fees for using network resources, commonly called gas.
This represents the computational effort required to execute an operation on the Ethereum network. The price of gas is expressed in gwei, small fractions of ether. One gwei is worth 0.000000001 ETH.
Gas prices also vary based on supply and demand and the volume of validation requests on the network.
On top of that, the gas fees serve as an incentive for Ethereum validators, as they receive these fees for staking their tokens, verifying transactions, and adding new blocks to the blockchain. As a result, higher gas fees can lead to faster transactions on the Ethereum network.
How the new meme coin season is increasing Ethereum gas fees
Paying gas fees is not a new practice for Ethereum users, as this feature has been built into the platform’s structure from the very beginning. However, using the Ethereum network has become more expensive as gas fees have risen, reaching unprecedented levels. A recent analysis shows that one user had to pay a whopping $118,600 worth of ETH for a single transaction.
Gas rates have fluctuated significantly, so these values are expected to increase. In May 2022, the gas price peaked at 150 gwei. In the months leading up to the Merger, the price gradually fell and hovered around 20 gwei.
Therefore, it was less common for gas fees to increase after completing the upgrade. Although the merger did not directly address this issue, lowering gas fees was seen as a by-product of the review, as the switch from miners to validators was expected to help decongest the Ethereum network.
However, with gas rates up more than 50% since April, it is clear that these expectations have not been met. This unexpected rise is probably due to the latest meme hype taking over the crypto sphere. The increased activity on the Ethereum network coincides with the listing of the newly launched meme coin, PEPE, on Binance, it cannot just be a mere coincidence.
After being pushed to the fringes of the crypto industry, the meme scene has entered a revival period with the rise of the PEPE token, an Ethereum-based meme coin that has caused a sensation in the crypto sphere. It started in April this year when the number of active addresses on Ethereum increased by 20,000 since November 2021.
Since PEPE is now listed on all major crypto exchanges and its price skyrocketed in just a few days, traders wanted to seize the opportunity to cash in on the hype. With more people jumping on the meme bandwagon, the Ethereum network saw a spike in user activity. As a direct consequence, gas tariffs increased along with it.
Higher gas prices translate into higher revenue for the network. The fact that users are also eager to trade new coins shows that they are gaining more confidence, which may help consolidate Ethereum’s position in the market. However, there is also a downside to these events.
Gasoline fees have always been a hotly debated topic among cryptocurrency enthusiasts, and for good reason. As the price of gas rises, it may hinder users who want to make low-value transactions or smart contracts.
It’s hard to say if gas rates will return to more reasonable values as the meme craze cools. However, it is useful to closely monitor this association going forward.
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