Ethereum Transaction Fees Drop to 5-Year Low as Blockchain Activity Slows

Ethereum network fees have fallen to their lowest point in five years, reflecting a decrease in transaction volumes on the blockchain, according to on-chain analytics platform Santiment. Transaction costs have dropped to approximately $0.168 per transaction, coinciding with fewer users sending Ether (ETH) and engaging with smart contracts, as Brian Quinlivan, marketing director at Santiment, noted in an April 17 blog post.

Quinlivan explained that when many users are active on the Ethereum network, they bid higher fees to ensure their transactions are processed quickly, which leads to higher average costs. However, when activity on the network slows down, as is the case now, the need to bid higher fees diminishes, which results in a drop in average transaction fees. This behavior follows a simple supply-and-demand principle, where lower demand for transaction processing leads to reduced costs.

From a trading perspective, Quinlivan pointed out that low fees could potentially signal a price rebound, though traders appear to be waiting for global economic conditions to stabilize before increasing their trading volumes with Ether and other altcoins.

The overall market, including both traditional and cryptocurrency markets, took a hit following the announcement of new tariffs by U.S. President Trump on April 2. While some markets have experienced partial recovery after tariff exemptions and a 90-day pause were granted for most countries, Ether has seen a decline of more than 12.5% in the past two weeks and remains stagnant just under $1,600, according to CoinGecko data.

Quinlivan observed that there is heightened sensitivity in Ethereum discussions, especially regarding tariff news and broader economic concerns, with Ethereum prices testing long-standing support levels. He added that when retail investors start to shy away from an asset, especially one like Ethereum with strong ongoing development, it often increases the chances of an unexpected price rebound, with little resistance from the market.

On the technical front, the Ethereum network is preparing for the launch of the Pectra upgrade, which is now set for May 7. The upgrade had previously been delayed due to configuration issues and complications arising from an attack during the Holesky and Sepolia testnet activations. 

The first phase of the Pectra upgrade is expected to significantly improve Ethereum's performance by doubling the layer-2 blob capacity from three to six, which will help reduce transaction fees and alleviate network congestion. Additionally, the upgrade will introduce the ability to pay transaction fees in stablecoins such as USDC and DAI, and the staking limit will be raised from 32 ETH to 2,048 ETH.

The second phase of the Pectra upgrade is anticipated to be released in late 2025 or early 2026. It will introduce a new data structure aimed at improving data storage efficiency, as well as a system that enhances scalability by enabling nodes to verify transaction data without needing to store the entire dataset.

The Pectra fork follows Ethereum’s Dencun upgrade in March 2024, which reduced transaction fees for layer-2 networks and improved the economics of Ethereum rollups, further enhancing Ethereum's scalability and transaction efficiency.