The cost of Ethereum transactions have experienced a sharp hike this year with the second largest cryptocurrency costing a lot more than Bitcoin transactions for the last two months, according to Data aggregator Messari on Twitter.
Ethereum fees have been higher than Bitcoin fees for 2 months straight. It’s longest streak ever pic.twitter.com/2KgnNBcrrT
— Messari (@MessariCrypto) October 8, 2020
The Ethereum network is halfway done with its ambitious Ethereum 2.0 project and will look to complete it by 2022. The project is geared towards a more sustainable future for the network as well as addressing several scaling issues that have plagued the development and progression of the network. Ethereum has forever been in the shadow of Bitcoin despite occupying the no.2 position for more than 4 years consistently in the cryptocurrency charts. However, Bitcoin does have the edge over handling of transactions thanks to a much bigger network and increased adoption.
Vitalik Buterin and other founders of the Ethereum project are determined to push through with the new updates and 2021 will see a complete migration from Proof-of-Stake mining approach. This will reportedly ease pressure on the network when it comes to transactions and transaction costs, but for now the network is still in the hybrid phase and relies on the free market concept of accepting transactions. This means that the miners can jack up prices if they pile up, thus favouring the one with higher fees in priority-based manner.
According to Messari, the Ethereum transaction costs began to skyrocket around August as the DeFi sector picked up steam. Now this is one of the fundamental problems of the network as since there are other programs that depend on it, there are lot of transactions tied to the ETH transactions themselves and a result, the system can be overburdened if too many apps suddenly go live on it. The same thing happened back in December 2017 and so much so that transactors had to wait for a few days before their transactions were confirmed. Back then it was the ICOs that were causing this clogging up of transactions, this time it is the DeFi apps that are mushrooming around the world and mostly based on Ethereum itself.
Average Ethereum transactions cost around $2 at the moment which is still much lower than September’s average of around $14. This volatile transaction rate has ignited quite a debate regarding the future of the sector and it interim phase that was supposed to keep things stable before the next big update.
There is also a big debate going on around the EIP-1559 protocol that sets a fixed transaction cost for all transactions. Miners are extremely wary of this move as this would effectively eliminate their competing role in the network and may force them out of profitability completely. This update conundrum will once again open floodgates for criticism of the Ethereum network as a non-consensus-based network as its closed set of developers have a history of pushing updates without building a consensus within the network. It remains to be seen how Ethereum will handle the turbulent period that leads up to the actual migration to the PoS system and then to sharding that can help solve scaling issues.
Image source: pixabay.com
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