{"id":6098,"date":"2021-02-06T16:38:09","date_gmt":"2021-02-06T16:38:09","guid":{"rendered":"https:\/\/newmoneyreview.com\/?p=6098"},"modified":"2021-02-18T15:24:01","modified_gmt":"2021-02-18T15:24:01","slug":"ethereum-network-sees-record-congestion","status":"publish","type":"post","link":"https:\/\/newmoneyreview.com\/index.php\/2021\/02\/06\/ethereum-network-sees-record-congestion\/","title":{"rendered":"Ethereum network sees record congestion"},"content":{"rendered":"<p>Congestion on the ethereum cryptocurrency network has hit record levels, driving per-transaction fees into three figures and rendering many decentralised finance (\u2018DeFi\u2019) projects unviable.<\/p>\n<p>\u201cJust spent $100+ on ETH gas fees to send a token.\u201d Changpeng Zhao, chief executive of cryptocurrency exchange Binance, <a href=\"https:\/\/twitter.com\/cz_binance\/status\/1357981012714659845\">wrote on Twitter earlier today<\/a>.<\/p>\n<p>\u2018Gas\u2019 is the fee required to successfully conduct a transaction on ethereum, paid in the cryptocurrency\u2019s native currency, ether.<\/p>\n<p>\u201cWaiting forever to convert some of my ERC-20 tokens due to these fees. I&#8217;ve written off so many projects because they are on the ethereum network and I hate dealing with the gas fees during congestion,\u201d <a href=\"https:\/\/twitter.com\/CryptoRemit\/status\/1357934468229652481\">another cryptocurrency user tweeted<\/a>.<\/p>\n<p>ERC-20 is the technical standard for the so-called \u2018smart contracts\u2019 that run on ethereum, a cryptocurrency network designed to allow the automated execution of financial transactions.<\/p>\n<p>According to data provider Coinmetrics, aggregate transaction fees on ethereum hit a record $34m on February 5, up nearly 600 percent since the beginning of the year.<\/p>\n<p>Ethereum transaction fees also now dwarf those on bitcoin, where fees yesterday added up to $5.5m.<\/p>\n<p>The price of ether, the native token on the ethereum network, also hit an all-time high of $1764 on February 5.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-6101\" src=\"https:\/\/newmoneyreview.com\/wp-content\/uploads\/2021\/02\/tx2.jpg\" alt=\"\" width=\"478\" height=\"286\" srcset=\"https:\/\/newmoneyreview.com\/wp-content\/uploads\/2021\/02\/tx2.jpg 478w, https:\/\/newmoneyreview.com\/wp-content\/uploads\/2021\/02\/tx2-300x179.jpg 300w\" sizes=\"auto, (max-width: 478px) 100vw, 478px\" \/><\/p>\n<p><em>Source: Coinmetrics<\/em><\/p>\n<p>The surging demand for ethereum transactions is being driven by a boom in DeFi projects, many of which use decentralised protocols to trade or lend their own ERC-20 tokens.<\/p>\n<p>For example, Uniswap allows token holders to swap them for other cryptoassets, a process that incurs a transaction fee on the main ethereum network.<\/p>\n<p>Another popular DeFi protocol, Aave, allows uncollateralised loans to be made and repaid within a single ethereum block, also incurring a transaction fee in ether.<\/p>\n<p>Some market observers view the congestion levels on ethereum as detrimental to the network\u2019s long-term prospects.<\/p>\n<p>\u201cDue to the limited capacity of the [ethereum] network, the current transaction pricing mechanisms are prioritising those investors that send the highest-value trades,\u201d Anish Mohammed and Tarun Wadhwa <a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/14\/what-defi-needs-to-succeed\/\">wrote recently in a guest post on <em>New Money Review<\/em><\/a>.<\/p>\n<p>\u201cIn other words, participation is being limited to those with large amounts of capital, leaving small-time traders behind. As new investors get priced out, adoption stalls, and eventually promising ideas languish because of this distortion. Over time, this type of situation can lead to ruin,\u201d said Mohammed and Wadhwa.<\/p>\n<p>Others believe that ethereum can cope with the rising demand from cryptocurrency users by shifting much of its current transaction activity to so-called second layer networks.<\/p>\n<p>\u201cMany smaller users and use cases are currently priced out from using ethereum,\u201d Hasu, a cryptocurrency analyst, told <em>New Money Review<\/em> earlier today.<\/p>\n<p>\u201cThis creates activation energy for wallets, projects and users to adopt Layer 2 solutions,\u201d said Hasu.<\/p>\n<p>\u201cSeveral are production ready or close to it, so it\u2019s very healthy in that sense.\u201d<\/p>\n<p>Amidst the ongoing cryptocurrency boom, programmers are researching a number of different technical solutions to expand the practical capacity of the ethereum network.<\/p>\n<p>Several of these Layer 2 scaling solutions promise transaction throughput capacity of 20,000 transactions per second or more. By comparison, the main ethereum network currently handles a maximum of 30 transactions per second.<\/p>\n<p>Another potential solution to ethereum\u2019s capacity constraints is the upgrade of the whole network to ETH 2.0, a proposed change that involves switching ethereum\u2019s consensus mechanism from proof-of-work to proof-of-stake.<\/p>\n<p>Proof-of-work, the consensus mechanism that also underlies bitcoin, relies on miners\u2014the computers validating transactions on the network\u2014<a href=\"https:\/\/newmoneyreview.com\/index.php\/2018\/04\/06\/what-powers-bitcoin\/\">proving they have expended a certain amount of electrical energy<\/a>.<\/p>\n<p>In proof-of-stake, a largely untested consensus mechanism, miners are replaced by stakers or validators\u2014entities who hold coins and who seek to maximize the value of their stake.<\/p>\n<p><em><a href=\"http:\/\/eepurl.com\/du6eTr\">Sign up here<\/a> for the New Money Review newsletter<\/em><\/p>\n<p><em><a href=\"https:\/\/blubrry.com\/newmoneyreview\/\">Click here<\/a> for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes<\/em><\/p>\n<p><span style=\"text-decoration: underline;\">Related content from <em>New Money Review<\/em><\/span><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/08\/defi-craze-intensifies\/\">DeFi craze intensifies<\/a><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/14\/what-defi-needs-to-succeed\/\">What DeFi needs to succeed<\/a><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/03\/12\/makerdao-goes-bust-threatening-ethereum\/\">Ethereum collapse makes MakerDAO insolvent<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Congestion on the ethereum cryptocurrency network has hit record levels, driving per-transaction fees into three figures and rendering many decentralised finance (\u2018DeFi\u2019) projects unviable. \u201cJust spent $100+ on ETH gas [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":6096,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1013,1053,1014],"tags":[1103,1947,1948,1949],"class_list":{"0":"post-6098","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-account","8":"category-featured-1","9":"category-payment","10":"tag-ethereum","11":"tag-fees","12":"tag-gas","13":"tag-layer-2"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.3 - 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