Even before the Merge, it costs less to use Ethereum

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The fees for using Ethereum are the lowest they've been in two years. This happened before a big event called the Merge, which is thought by many to be driving up the price of its cryptocurrency, ether (ETH).

The average cost of a transaction is less than 12.5 gwei, which is a unit of account that is a fraction of an ETH and is used to measure the gas (or transaction fees) needed to run Ethereum. That's less than half of the gwei you needed at the end of July to use Ethereum.

This is good news for Ethereum users, who have been complaining for a long time about how much it costs to use the network. But there are fewer people who can use it. Prices are down because demand is down as well.

Even though the number of people using Ethereum is going down, it is increasingly seen as a good investment. The network will switch to proof-of-stake (PoS) next month. This will completely change how much it costs to use the network, which should make it more efficient and cheaper to use.

Some people also think that Ethereum's change could make the network deflationary, which means that it could eventually burn more tokens than it makes, which would make the value of any ETH you hold go up. At the moment, no one knows how much Ethereum there is because its supply is not fixed like Bitcoin's is.

But, as Samual Haig of The Defiant pointed out, there's a catch. When people use on-chain less, the network burns fewer tokens. He brings this up to show that the "deflationary narrative" that may be influencing buyers may not be true.

In fact, a large number of people who like Ethereum say that ether is "ultra-sound money." It is not only the currency that will power the "world computer," but it is also an investment that can compete with "digital gold" (BTC). Others, like the CoinList exchange, aren't as gung-ho about the Merge, but they still think it's "a fundamental, structural change" that will probably make Ethereum's price go down.

Last year, Ethereum developers released EIP-1559, which stands for Ethereum Improvement Proposal and is a way to take ether out of circulation. This was done to lower network costs. This works by burning a part of the transaction fees, and it changes based on how much space is in the block and how much is happening on the chain.

Since EIP-1559, there have been days and even weeks when the price of Ethereum went down. This usually happens when the market goes up, or sometimes when non-fungible token (NFT) mints do very well for some strange reason. Haig said that after Yuga Labs' Otherdeeds sale, 58,000 ETH were burned, which was worth about $160 million at the time. This was the most active NFT launch to date.

But Ethereum has only burned about 7,500 ETH in the last week, which is the lowest amount ever. This is because on-chain use has been going down. Haig said that if this trend keeps going, the network won't be deflating after Merge. (Estimates vary, but it is thought that under PoS, 1,649 ETH will be put into circulation.)

"The demand for block space must rise by about a third from where it is now for the burn rate to keep up with the release of ether after the merge," Haig wrote on August 8.

That doesn't mean Ethereum will never be deflationary, but if you look at the chart from a distance, the low fees and low usage of today look like the steady state of a blockchain that isn't in a bull run. From the start of the network in 2017 until the middle of 2020, fees were usually less than 20 gwei.

That was the case until Compound started the "DeFi Summer" yield farming party. The average transaction fee went up to over 700 gwei, which was the highest it had ever been. Since then, it has been going down. The 2017-2018 bull run, which sped up the development of Proof-of-Stake (PoS) on Ethereum after CryptoKitties clogged up the chain, isn't really shown.

Considering how many changes have been made to Ethereum's issuance and cost structures over the years, network fees from the past are not a perfect indicator of actual use. Also, no one knows at all how the change in the network will affect demand. Costs will go down, but as we can see now, that isn't enough to make people rush to make transactions.

People who were interested in crypto but didn't want to use it because they were worried about its carbon footprint might flood the network.

For now, all we can say is that the price of using Ethereum is getting close to what it usually costs during bear markets. If that means that after the Merge, Ethereum will be just as deflationary as it is now, based on demand, then so be it. But if you couldn't afford to buy a CryptoKittie last time, now is just as good a time as any other.

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