One explanation is that the fast expansion of the Bitcoin Lightning Network, in which transactions are off the blockchain, may have been a catalyst.
For perspective, the Bitcoin network charges a fee for each transaction. This payment is then divided between miners. When the network is congested and demand for transaction processing far surpasses the supply of miners, users frequently pay more.
On April 21, the average transaction fee on the Bitcoin network reached an all-time high of $62.8 per transaction as miner outages in China slowed block production at a time when demand for Bitcoin was robust.
The drop in costs may be attributed to Bitcoin miners becoming less skeptical and not losing interest in processing transactions. When this happens, the mining difficulty, which measures how difficult it is to validate a Bitcoin transaction, falls.
Another possible reason for the declining transaction cost is the decongestion of the mempool, which is the collection of all pending transactions before being confirmed. When a transaction is sent to the Bitcoin network, it remains in the mempool until it receives confirmation. Because each BTC block has a certain size of 1MB, a large mempool may encourage miners to favor more lucrative transactions.
During these instances, customers begin paying more in order for their transactions to not get stuck in the mempool. This raises the overall transaction cost on the Bitcoin network.
The size of the Bitcoin mempool has been well below its maximum capacity as shown by the chart below.
The average transaction count has also dropped significantly in recent months. On an average per day, there were more than 350,000 transactions at the start of 2021, but that number has now fallen to between 250,000 and 213,000 transactions per day.
Another possible explanation for the decline in transaction costs is that traders and holders of Bitcoin tend to use less BTC. A drop in demand causes the cost per token to fall, which decreases transaction fees.
Meanwhile, Ethereum fees have also plummeted with the rest of the cryptocurrency market. The average transaction fee of the Ethereum network was $4.90 as of publishing time, having peaked at $69.92 on May 12, 2021.
As a new week gets underway, Bitcoin (BTC) is back at $57,000, ending a tumultuous few weeks that saw the price plummet.