While both Bitcoin and Ethereum have seen strong technical improvements since the last bull run in 2017, the transaction throughputs of these blockchains still can’t handle much stress without fees skyrocketing.
This much was made clear over the past few days as many have noted that the average transaction fees on both Bitcoin and Ethereum have skyrocketed.
Ethereum Transaction Fees Are Skyrocketing
As observed by the market analyst “Ceteris Paribus,” the cost of gas on Ethereum has reached 41 Gwei, up approximately 300% since the end of April. Most of the time, the Gwei cost of gas is around 10, though it often falls even lower towards 4-6.
Although it is hard to tell exactly what is causing this, there are two likely causes:
- An explosion in popularity of a purported scam called “MMM,” which has spent over 661 ETH in transaction fees over the past month. The smart contract affiliated with the scam is the second-most used contract by fees in the past month.
- Tether’s USDT has continued to see mass adoption on Ethereum, with a majority of the stablecoin’s supply existing on the blockchain. Due to increased market volatility, USDT is likely being used a lot more than it was a month ago.
Gas prices on Ethereum have been skyrocketing over the past month. Average gas price is now 41 Gwei, up 4x since end of April.
It uses oscillates between 10-15 outside of high periods of stress (i.e. Black Thursday). pic.twitter.com/RJmdquQNdC
— Ceteris Paribus (@ceterispar1bus) May 15, 2020
As a related side note, transaction fees on the Bitcoin network have also surged over the past few weeks, with a combination of slower block times and an increase in transaction demand forcing the average transaction fee to $5.161, according to Bitinfocharts.com.
This is about ten times higher than it was towards the end of April.
What may be happening is because transactions are slow on the Bitcoin blockchain, those looking to transfer value between exchanges to play the market are buying ETH or USDT with their BTC, transacting that to other exchange accounts, thus creating a clog on Ethereum.
Although there is no way to tell if this clog is going to continue as 2020 elapses, Reddit is expected to roll tokens to the Ethereum mainnet come Q3 or Q4 of this year, which may clog up the blockchain yet again.
For those who missed the memo, this week, internet forum Reddit, which is one of the most visited sites in the world with hundreds of millions of active users, confirmed the launch of a new project called “Community Points.”
Community Points are tokens for specific subforums on Reddit, which can be used to redeem rewards and get access to certain featured that token holders won’t have access to.
For the time being, tokens will only be issued on Ethereum’s Rinkeby testnet for the CryptoCurrency and FortniteBR forums, which have around one million users apiece.
But should this beta go well, Reddit intends to migrate these tokens onto the Ethereum mainnet, then release other tokens for other forums as well, creating a massive influx of users in the order of millions.
This, of course, could create an immense blockchain clog that may be bigger than anything Ethereum has seen. As Brian Flynn of Ethereum startup Rabbit Hole asked in reference to when CryptoKitties dramatically slowed down Ethereum in 2017:
If this is happening on Rinkeby, then what will happen to gas price and blocks when Reddit launches this on mainnet? Won’t we just have another CryptoKitties moment?
If this is happening on Rinkeby, then what will happen to gas price and blocks when Reddit launches this on mainnet?
Won’t we just have another CryptoKitties moment? https://t.co/XgPFETtSjw
— Brian Flynn (@Flynnjamm) May 14, 2020
There Are Solutions
Innovators in the space are coming up with solutions for Ethereum’s network clog.
Decentralized finance protocol Synthetix and Optimism have begun to beta-test a scaling system called Optimistic Rollups. The system basically compresses blockchain data and migrates the onus of transaction validation off-chain, decreasing fees and increasing potential transaction throughput.
There are other rollup projects being worked on that could similarly help Ethereum scale, but Optimistic Rollups seems to be one of the furthest ahead.
There’s also the introduction of Ethereum 2.0, slated to begin this year, that may solve scaling issues. But as the upgrade’s first phase only implements Proof of Stake, it may be months or maybe even over a year before Ethereum benefits from the scaling improvements of technologies like block sharding.