Blockchain transaction fee and Ethereum Merge

Abstract

We study the determinants of transaction fees in the Bitcoin and Ethereum blockchains, particularly focusing on the recent Merge – Ethereum's transition from a Proof-of-Work to a Proof-of-Stake consensus mechanism. Using multivariate regression analysis, we find that blockchain fees in USD increase with network congestion, measured by the mempool count, in a non-linear manner as hypothesized by Huberman, Leshno, and Moallemi (2021). Additionally, the fees are positively influenced by the respective native currency's returns over the past six months. The Merge resulted in a fee reduction for both Bitcoin and Ethereum blockchains.