The cost of sending a transaction on the Ethereum network has declined over the past nine years, falling from over $77 million in September 2020 to just over $450,000, according to data from Glassnode.
While the lower fees are typically a welcome relief for Ethereum users, they present challenges for miners, who rely on transaction fees as a major source of income.
According to data from Glassnode, miners’ revenue has shrunk, with their earnings from transaction fees dropping from a peak of 25,686 ETH (about $77 million) in September 2020 to just over 150 ETH ($450,000) by January 26. Note that Ethereum is trading just above $3,000 today.
What it Means for Miners
Notably, the decline in transaction fees could result in plummeting miner participation, as the financial reward to secure the network becomes less attractive. Additionally, if this trend continues, it can have implications for Ethereum’s security and decentralization, as miners may undermine the network’s resilience.
It is important to also note that this sharp decline in transaction fees could be primarily driven by the increasing adoption of Layer 2 solutions. These offload a significant portion of transaction processing from the Ethereum mainnet.
Technologies like Optimistic Rollups and ZK-Rollups enable faster and cheaper transactions by processing them off-chain, reducing congestion and, in turn, the demand for block space on Ethereum, which lowers gas fees.
Ethereum L1 Transaction Activity at ATHs?
Interestingly, as transaction fees decreased, Ethereum’s Layer 1 network has still been experiencing massive transaction volumes. Notably, Leon Waidmann, Head of Research at Lisk, shared an important update on X regarding Ethereum’s transaction volume.
He pointed out how Ethereum’s transaction volume has reached an all-time high, while transaction fees are still significantly lower than in 2021. According to Waidmann, Ethereum is now processing three times the number of transactions at just a third of the cost compared to the peak of the fee-driven explosion in 2021.
Waidmann highlighted the difference between the current network activity and the speculative-driven spikes of 2021. He emphasized that today, the transaction volumes are driven by genuine economic activity rather than market speculation. This shift indicates that Ethereum’s network is being used at scale for real-world applications, with users paying for practical economic transactions rather than speculative investments.
While Waidmann acknowledged that Ethereum’s fees have started rising again, he described this as an “orange flag.” Despite this uptick, he reassured that the per-transaction costs for Ethereum users are still much lower than those of alternative chains, which often charge premium fees for less liquidity.
Lower Fees Are Opening Doors for Poisoning Attacks
Elsewhere, a more in-depth study, as reported by Andrey Sergennkov and highlighted by Alex Thorn, Head of Firmwide Research at Galaxy Digital, showed that there was a more complex cause for the increase in transaction and new addresses.
Per the research, it was not only the cost reduction by the Fusaka update that caused the surge, but also a mass address poisoning attack.
Although the success rate of such attacks is usually low (approximately 0.01%), most of the profit comes from a minimal number of victims. In the latest attack, $509,000 was transferred to the pockets of the attackers, while a separate victims lost about $50 million.
In the past, high costs of dust transfers restricted the magnitude of such attacks. However, with the recent drop in Ethereum transaction fees, address poisoning has become much more cost effective, enabling attackers to conduct large-scale activities that were once impractical.
This change, besides demonstrating the difficulties of miners over the fees, also displays the unintentional effects of the changing Ethereum fee structure. According to the report, the natural reaction in such attacks is to seek more privacy, either using dedicated privacy networks or by taking advantage of built-in privacy controls that are meant to protect consumer transaction data.
