It is widely recognized that cryptocurrencies are subject to volatility, which is no longer a surprising fact. The crypto winter in 2022 led to several 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 fell entirely on the price drop, Ethereum made the news for several other reasons.
There are plenty of resources out there on how to open an account on an exchange platform or how to buy Ethereum. However, the most crucial step when getting into crypto is research. One must learn about the project’s history and development to understand its pros and cons and make informed trading and investing decisions.
So, Ethereum’s evolution over the past months has been interesting. After undergoing its biggest upgrade since inception, known as the Merge, on Sep. 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 upgrade, Shanghai, which took place on April 12, 2023.
Ethereum is again in the spotlight due to its rising gas fees that reached 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 individuals not well-versed in the Ethereum network, explaining gas fees and their significance is crucial. Ethereum encompasses more than just a cryptocurrency that can be purchased or traded on exchange platforms.
It is a decentralized open-source blockchain platform with numerous use cases and applications, accompanied by its native coin called ether (ETH).
Although “Ethereum” and “Ether” are sometimes used interchangeably, they refer to distinct entities, which can lead to confusion.
Therefore, the Ethereum platform can be used to develop other crypto projects, conduct transactions and run smart contracts. However, to carry out these actions, users must pay certain fees for utilizing the network’s resources, commonly called gas.
This represents the computational effort required for the execution of an operation on the Ethereum network. The gas price is expressed in gwei, tiny 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, gas fees serve as an incentive for Ethereum validators, as they get to receive these fees for staking their tokens, verifying transactions, and adding new blocks to the blockchain. As a result, higher gas fees may lead to faster transactions on the Ethereum network.
How the new meme coin season is rising Ethereum gas fees
Paying gas fees is not a new practice for Ethereum users since this feature has been embedded in the platform’s structure since the beginning. However, using the Ethereum network has become costlier as gas fees rise, reaching unprecedented levels. A recent analysis shows that a user had to pay a whopping $118,600 worth of ETH for only one transaction.
Gas fees have fluctuated significantly, so these rising values are expected. In May 2022, the gas price hit a high of 150 gwei. In the months leading to the Merge, the price gradually dropped and hovered around 20 gwei.
Therefore, it was less common for gas fees to spike after the completion of the upgrade. Although the Merge didn’t target this issue directly, lowering gas fees was viewed as a by-product of the overhaul, given that switching from miners to validators was expected to help de-congest the Ethereum network.
However, since gas fees have gone up by more than 50% since April, it’s clear that these expectations haven’t been met. This unexpected surge is probably caused by the latest meme hype that has taken over the crypto sphere. The rise in activity on the Ethereum network coincides with listing the newly-launched meme coin, PEPE, on Binance can’t be just a mere coincidence.
After being pushed to the fringes of the crypto industry, the meme scene has entered a period of revival with the emergence of the PEPE token, an Ethereum-based meme coin that has been making waves in the crypto sphere. It began 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 soared over a few days, traders wanted to take advantage of 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 fees rose in tandem.
Higher gas prices translate into higher revenue for the network. The fact that users are also eager to trade new coins shows that they’re gaining more confidence, which can help solidify Ethereum’s position in the market. However, there’s also a downside to these events.
Gas fees have always been a highly debated topic among crypto enthusiasts and for a good reason. As the gas price rises, it can impede users who want to perform low-value transactions or smart contracts.
It’s difficult to say if gas fees will return to more reasonable values as the meme craze cools off. However, it’s helpful to monitor this association closely from now on.
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