Ethereum gas fees for transactions have plummeted amid a wider decline in the price of the cryptocurrency. According to recent data, the base fee paid by users has dropped to an astonishingly low 0.82 Gwei, a clear indication of reduced activity on the Ethereum network.

Rapid drop in Ethereum base costs

Facts from Ultra Sound Money reveals that Ethereum’s base gas fee has been in a continuous decline over the past week, eventually reaching a multi-year low of 0.82 Gwei on Saturday, August 11th. This significant drop in gas fees can be attributed to a decrease in large transactions on the Ethereum network. On-chain data from IntoTheBlock reports that the number of transactions above $100,000 has dropped sharply. From 16,990 transactions on Monday to only 2,620 transactions on Saturday.

The drop in gas fees has also led to a decrease in the amount of ETH burned. This is based on the idea that the base fees paid by users are burned and removed from circulation to create deflationary pressure on ETH supply. Data from Ultra Sound Money shows that only 3,698 ETH tokens have been burned in the past seven days, while 18,065 new ETH tokens have been issued in the same period. This imbalance between burned and newly issued tokens has led to a net increase in the circulating Ethereum supply, which speaks the expected deflationary result.

Why are gas rates important?

The relationship between gas ratesNetwork activity and the overall supply of ETH is an important factor that traders and users keep an eye on from time to time. Gas fees on Ethereum are fundamentally tied to the level of activity on the network. As the number of transactions increases, so does the demand placed on validators to process and validate these transactions.

When the network is overloaded with a high transaction volume waiting to be added to blocks, users must pay a higher gas fee if they want their transactions to be processed quickly. By doing this, they can ensure that their transactions are validated and completed in the next block.

Historically, higher gas fees, while unfavorable to users, have been seen as a reflection of increased interest and activity on Ethereum. Such periods of high network demand often correlate with bullish market action. At its peak, users paid an average daily gas price of $196,638 in May 2022.

In times of low activity, as what is currently observedthe reduced demand always leads to a reduction in gas costs. While lower gas costs can be beneficial for users looking to save on transaction fees, they also reflect a period of slow activity on the network. At the time of writing, Ethereum is trading at $2,585 and is down 3.58% over the past 24 hours.

Main image created with Dall.E, chart from Tradingview.com