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Bitcoin Transaction Fees Altering its Ecosystem

Bitcoin (BTC) transaction fees entail the amount charged for your proceedings to be handled by a miner and approved by the Bitcoin network.

According to research by Cornell, BTC transaction fees may threaten its ecosystem by jeopardizing long-term viability and prompting energy wastage.

BTC has grown to unprecedented heights in the last ten years as it is dubbed the “king” of cryptocurrency. Various shortcomings have, however, been witnessed as users are forced to wait for lengthy periods for their transactions to be incorporated into the blockchain. This lag has been detrimental because it has triggered the materialization of fees that users are expected to pay for them to be moved ahead of the waiting line.

Transaction fees not part of initial BTC system

Maureen O’Hara, a professor of economics at the Samuel Curtis Johnson Graduate School of Management, asserted: “Bitcoin now works essentially how markets work because if you want something to happen faster, you have to pay for it.”

She also asserted that transaction fees were exempted from the original BTC system because they have just evolved.

O’Hara added: “A system that’s designed by a computer scientist for security problems may not be well-designed to trade in the markets, so the development of fees is actually a good thing. But it also created all kinds of problems.”

O’Hara proclaimed that the fees might assist the faster processing of some proceedings, but the cost endured was making many transactions impractical. She also stated that one of the significant problems of BTC entailed the high fees charged even for simple deals.

O’Hara made a comparison of the present BTC transaction fees with a parade where one onlooker stands to get a better glance, and in the process, making other onlookers follow suit.

She claimed: “If everyone is standing up, you’re not seeing any better than you were when you were sitting down.” And if everybody’s paying a transaction fee now, then you may end up in the same situation that you were in before – the fees got high, and you have to wait anyway.”

The transaction backlog is also associated with high energy amounts because blockchains are notorious power consumers.

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Bitcoin Transaction Fees Soar After Block Reward Halving

Average transaction fees on Bitcoin (BTC) have risen significantly since the halving. On 12th May 2020, the average Bitcoin transaction fee reached USD 2.79, the highest in ten months, and jumped further to USD 5.16 on 14th May. The average transaction cost risen 168% over the past four days alone. This is a phenomenon that has not been witnessed since June 2019.

Since the turn of the year, Bitcoin transaction fees have been on the rise and especially soared ahead of the halving.

The Bitcoin fees surge being posted in news headlines is a sign that the Bitcoin network reached its imposed limits that governs how well it can serve its community.

High Bitcoin Transaction Fees for Consumers

Bitcoin’s average transaction fees increased an astonishing 1,742% since January 1. But the majority of that increase begun on April 28, two weeks before Bitcoin’s halving event.

Normally, transaction fees rise when the Bitcoin network experiences a period of high usage. Transactions compete for limited space in Bitcoin’s blocks. As users are competing to have their transactions included in the next block, this causes a race to the top in transaction fees.

An average transaction fee of $5.16 on May 14 was not intentional by design. But it is because of an overcrowded member pool, whereby all the valid transactions wait to be confirmed by the Bitcoin network. If the member pool keeps being overcrowded, then the fees will keep rising because people mainly want priority over others to be confirmed.

Over the last two weeks, 80MB worth of Bitcoin transactions were recorded on the network. Although the number has managed to go down, it has not managed to remain down. The constant flux with the member pool size shows that Bitcoin has had few opportunities to rest in the past 30 days.

The block reward halving event seems to be responsible for Bitcoin’s sudden influx of activity in the previous few weeks. The backlog of transactions has continued to pile up. The rise in average transaction fees forces Bitcoin users to choose between sending transfers that are fast, but expensive, or cheap, but slow.

Post-Halving Prediction

Bitcoin is back in the headlines as it draws huge attention of millions of consumers, speculators, and investors across the world. It has seen enormous gains since its inception more than a decade ago, although there also has been much volatility along the way. Last week, Bitcoin completed its third halving event. Since the halving, Bitcoin has been on the rise and is currently just under the $10,000 mark.

Over the last week, the cryptocurrency has appreciated more than 10%, rising from $8,600 to trade around $9,500. So far, the post-halving result has contrasted with the general market expectation of a price decline. Traders, investors, and consumers hold a positive long-term outlook of post Bitcoin halving. Of course, fear of missing out has led new investors and consumers to jump onto the crypto bandwagon, thus builds further momentum. This is a likely explanation for the rise in Bitcoin transaction fees.

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Ethereum Breaks Past $1000, Triggering a Spike in ETH Gas Prices

Ethereum has surged past $1000, following Bitcoin’s footsteps to wrap up 2020 nicely.

Bitcoin (BTC) and Ethereum (ETH) have both rallied bullishly in 2020, mirroring their bull run of 2017. At the time of writing, Ethereum has kept up its bullish momentum, trading around $1086 and up 12% in the last 24 hours. Currently, its market cap is valued at more than $100 billion. However, although Ethereum surged to a three-year high and even broke past $1,100, a growing concern has also been addressed by the cryptocurrency community. With the rise in Ethereum’s price, a spike in transaction fees has been observed on the network.

Since January 1, Ethereum gas fees have risen by almost 400%. Ethereum gas fees, or gwei, refers to the price it costs for a transaction to be validated on the Ethereum blockchain. According to data analytics BitInfoCharts, Ethereum’s gwei has spiked to record its third-highest level ever. In order for a transaction to be processed on Ethereum, users must pay around $11 dollars in fees.

Congestion on the Ethereum network

This is rather alarming, as it may mean that the Ethereum ecosystem may be congested with transactions waiting to be processed. Additionally, the prices may be too high for the average user on Ethereum, so they must either accept the long delays or pay an inflated transaction fee.

As most decentralized finance (DeFi) protocols run on Ethereum’s network, industry experts have previously questioned whether the Ethereum blockchain infrastructure could sustain the DeFi boom in the long run. Tushar Jain, a managing partner at Multicoin Capital, explained:

“Ethereum is suffering from anti-network effects. Each new user makes the system less usable for other users by crowding them out. For example, it currently costs ~$100 in gas to trade on Uniswap. Simply sending some ETH around costs ~$10. DeFi has outgrown Ethereum.”

Mati Greenspan echoed Jain, saying:

“OMG!! Ethereum transactions are more than $7 a pop. How will people be able to afford a cup of coffee in the third world??”

High gas fees deter Aavegotchi from launching mainnet

Following the spike in gas fees, Aavegotchi DeFi project announced that it will delay the launch of its mainnet for its non-fungible token (NFT) digital collectible game. Aavegotchi explained that the high gas costs and the extreme volatility on Ethereum have caused the DeFi project to postpone the launch of its game. As an alternative, it is considering migrating to the Matic network, a secure L2 sidechain.

If Ethereum’s rise in gas fees is not addressed and solved on ETH 2.0, DeFi developers may increasingly shop for other platforms to host their dApps.

Ethereum 2.0 mainnet in the works

Currently, the first building block of the new Ethereum 2.0 mainnet is being developed and features a beacon chain. Ethereum wishes to transition to a proof-of-stake protocol with its new mainnet. Should that be worked out, the team assures that there will be an improvement in the scalability of transactions, namely the amount of time it takes the network to process one. Previously, Ethereum co-founder Vitalik Buterin had also suggested that transaction fees will go down on the new blockchain ecosystem.

Ethereum Exploded by More than 17.4% over the Weekend as Transaction Fees Recorded 205.99% Monthly Growth

The crypto community is continuously keeping a keen eye on Ethereum (ETH) based on its record-breaking moves.

Over the weekend, the price of Ethereum soared to hit a new record-high topping $1460. On CoinMarketCap, it touched a high of $1467, though it has pulled back to $1,320 at the time of writing.

New data by Santiment reveals that the uptrend over the weekend made Ethereum increase by more than 17.4%. The on-chain data provider explained:

“After an explosive +17.4% weekend for Ethereum, prices have cooled down over the past day, dropping by -9.3% since its new AllTimeHigh. Our latest linked study explores metrics, like exchange inflow spikes, that revealed this drop would be coming!”

Santiment acknowledged that this correction was expected as exchange inflows had increased. This information correlates with the fact that addresses holding more than one ETH reached a monthly high of 1,120,692.

Ethereum’s monthly transaction fees record momentous growth

Without a doubt, the Ethereum network has been experiencing overwhelming activity, as evidenced by its price surge to an ATH of more than $1,460. Token Terminal has delved deeper into the massive growth of transaction fees on the ETH blockchain. The crypto metrics provider noted:

“During the past 30 days, users of the Ethereum blockchain have paid over $268,970,267 in transaction fees (+205.99% growth month-over-month).”

The engine behind Ethereum’s current bull run is a booming decentralized finance (DeFi) sector and the launch of ETH 2.0 earlier last month, which introduced the proof-of-stake consensus mechanism. The total value locked (TVL) in DeFi currently stands at $26 billion.

Mira Christianto, a researcher at Messari Crypto, added:

“DeFi is the most important innovation in crypto. The next wave will be Fixed Income Protocols Credit markets are 3x equity markets. Interest rates are the largest derivs markets DeFi will penetrate fixed-rate lending and i/r derivatives but there are no clear winners yet.”

DeFi and ETH 2.0 are expected to continue attracting more participants to the Ethereum network, which will like trigger a surge in ETH’s price.

EIP 1559 May Not Reduce High Gas Fees on Ethereum, but ETH 2.0 Will – Here’s Why

EIP-1559, an Ethereum Improvement Protocol set to launch in July, has been touted as a game-changer that will address the issue of rising gas fees on the network.

However, according to an “Ethereum Gas Report” by CoinMetrics data analytics, Ethereum’s EIP 1559 upgrade may not resolve the issue of rising transaction fees, although it is set to burn an amount of Ether per transaction and make the cryptocurrency a deflationary asset. CoinMetrics explained:

“High transaction fees are fundamentally a scalability problem. If Ethereum can only process a few hundred transactions (on average) per block, there’s going to continue to be high fees as long as dapp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block space.”

Gas prices correspond to the fee that you pay for a transaction on Ethereum. They are denominated in “gwei,” where one gwei corresponds to 0.000000001 ETH. On Ethereum, different transactions require different amounts of gas, but more complex ones will require a bigger amount.

Currently, transactions requiring more gwei to be processed get miner priority and faster transaction times than those that require a lower amount of gas to process. According to the report by CoinMetrics, the reason why Ethereum is experiencing high gas fees are due to the increased usage of the network, and the blocks being consistently full – thereby creating congestion on the blockchain network. Partly due to the DeFi boom, Ethereum blocks have been 97-98% full since March 2021.

Ethereum 2.0 – Serenity

However, with the new EIP 1559 upgrade, block capacity – which now enables on average 160 to 200 transactions per block – will be reduced to 50%. On EIP 1559, transaction fees will be made a bit more predictable, as there will be a base fee. However, the base fee may not necessarily be lower than it currently is, as demand to transact on Ethereum is high.

Additionally, base fee will be determined based on block fullness and “this escalating base fee will eventually make it too expensive for some users to transact, reducing congestion and causing block fullness to fall back towards 50%.”

CoinMetrics explained that what will ultimately solve the issue of high gas fees on Ethereum will be scalability, which is expected of Ethereum 2.0 as layer 2 solutions will be implemented on the new mainnet. Per the report:

“But layer-2 (L2) scaling solutions, and ultimately Ethereum 2.0, will be needed to truly reduce transaction fees over the long-term. Through various means, scalability solutions will increase the amount of transactions that can be processed per block, which will help relieve the congestion contributing to high fees.”

Currently, ETH 2.0 is being issued and developed phase by phase. ETH 2.0 is a transition to a pure proof-of-stake network, and it currently runs parallel to Ethereum’s main blockchain. Ethereum’s underlying win of 2020 has been the launch of ETH 2.0’s first phase, the Beacon Chain, which acquired more validators than expected to trigger its debut.

While Ethereum developers have been working on perfecting ETH 2.0, an upgrade to the current Ethereum 1.0 mainnet is expected to go live in mid-April. It is dubbed Berlin, and will feature 4 EIPs. On the hard fork upgrade, increased gas efficiencies, updates to the code read by the Ethereum Virtual Machine (EVM), and other enhanced protection against denial-of-service (DDoS) attacks are to be expected.

New London Upgrade Could Help Ethereum Hit $3,000, Crypto Expert Says

Some crypto pundits believe that Ethereum could knock Bitcoin off from its first position and eventually become the first largest cryptocurrency market cap.

However, the Ethereum network has been facing serious issues that needed urgent solutions. In May, the average transaction fees on the network soared above $70, thus making the crypto unsuitable for daily retail use.

The London hard fork update to the Ethereum blockchain is highly anticipated to address Ether’s high transaction fees.

The update is expected to occur on August 4. The event will begin Ether’s transition from proof-of-work to proof-of-stake, a less energy-intensive consensus mechanism for transaction validations.

Konstantin Anissimov, Executive Director at CEX.IO, talked about the development and stated that the London hard fork could significantly change Ethereum’s price and adoption. He further explained that the hard fork is anticipated to make Ether less inflationary and help prepare the launch of Ethereum 2.0 in time to come.

“In my opinion, Ethereum will recover to $2,300~$2,500 in the lead up to the hard fork and surpass $3,000 in evaluation by the end of August, provided we do not see drastic governmental intervention in the form of cryptocurrency bans or hard-hitting rules and regulations,”

Although Giacomo Arcaro, an entrepreneur at Growth Hacker, said that Ether’s value could rise in case the hard fork proves itself to be valuable, he cautioned that “It’s also possible that this shift is effectively already ‘priced in.”

Adam Todd, Founder and CEO of Blockster, said that industry experts expect the London hard fork update to see about 20% to 30% ETH’s transaction fees reduction. He, however, had a different view, saying that a reduction in Ethereum transaction fees would not materialise so much, especially “when peak volumes go through.”

“Those betting on substantial fee cuts or an ETH price hike will likely end up disappointed,”

The London hard fork is part of the crypto’s final stages before the release of Ethereum 2.0. The launch of the London hard folk faced delays, and its previous release date this month was rescheduled to take place on August 4.

Ethereum As Global Blockchain Of Choice

Ethereum has attracted several global financial institutions because it remains the gold standard for blockchain-based and smart contract applications. If institutional investors release that the London hard fork positively impacts Ethereum’s long-term evolution, then the crypto asset price would rise.

The London upgrade is a long-awaited update in quite some time and will follow the recently implemented Berlin hard fork. The London hard fork is planned to complement the Ethereum 2.0 transition, changing the Ethereum chain from proof-of-work to proof-of-stake.

The biggest changes being introduced to the Ethereum blockchain include five Ethereum Improvement Protocols (EIPs), majorly EIP-1559, EIP-3554, and EIP-1559. Of course, EIP-1559 is poised to change Ethereum’s transaction fee rate to a new scheme that makes the cryptocurrency deflationary.

Ethereum’s Network Revenue Shot up by 1,777% Last Annual Year

During the release of Ethereum’s quarterly report, market insight provider Bankless noted that ETH network revenue increased by 1,777% from Q4 2020 to Q4 2021.

Per the announcement:

“Network Revenue rose 1,777% from $231.41 million to $4.34 billion. Of this, $3.78 billion (87%) worth of ETH was “burned” and removed from the circulating supply through EIP-1559.”

Network revenue entails the fees paid by users to utilize the Ethereum network.

Furthermore, the average daily active addresses rose by 35% from 425,636 to 572,700 during the same period, signalling that more participants joined the ETH ecosystem.

On the other hand, the inflation rate was downtrend from Q4 2020 to Q4 2021. Bankless acknowledged:

“ETH Inflation Rate fell 64% from 1.13% to 0.46%. This tracks the increase in the supply of ETH, less burnt fees, as a result of the block reward issued to miners as compensation for confirming transactions.”

A recent study by crypto service provider LuckyHash pointed out that the inflation rate would enter the negative zone if Ethereum 2.0 were fully upgraded, hence prompting a 1% annual deflation rate.

Ethereum 2.0, also known as the Beacon Chain, which seeks to transit the network to a proof of stake (PoS) consensus mechanism from the current proof of work (PoW), recently reached a new milestone with a deposit of more than 9 million Ether.

Nevertheless, the challenge of high gas fees on the ETH ecosystem continues to be evident because the average transaction fee jumped by 557%, from $4.09 to $26.89, as disclosed in the quarterly report.

Meanwhile, a recent poll undertaken by Vitalik Buterin revealed that Cardano (ADA), Bitcoin (BTC), and Solana (SOL) were the most preferred Ethereum substitutes.

Total Fees Paid on Bitcoin Network Hit Monthly Low, Hashrate Records Historic Highs

Bitcoin’s friendliness in terms of the low transaction fees paid to use its network continues because it hit a monthly low. Market insight provider Glassnode acknowledged:

“Total fees paid (7d MA) on the Bitcoin network just reached a 1-month low of 0.427 BTC.”

The previous monthly low was observed on Christmas day.

On the other hand, the BTC hashrate has been trending upwards, given that it recently attained a record-high. Glassnode added:

“Bitcoin hash rate has reached 183 Exahash, a new all-time high. After a -54% reduction in May 2021 resulting from a ban in China, mining rigs have returned to operation, growing network security by +117% since July.”

Source: Glassnode

Market analyst Will Clemente opined that the Bitcoin network was presently more secure than ever before based on the recovery made by the hashrate following China’s crypto mining ban.

Chinese authorities made it clear that crypto mining was unwelcome on Chinese soil in May 2021. As a result, BTC miners were left with no choice but to shut down operations and relocate elsewhere, a move that made Bitcoin shed off more than half of its value by plummeting to lows of $30K.

Furthermore, the hashrate on the BTC network was nosedived by more than 50%.

The hashrate is used to measure the processing power of the BTC network. It allows computers to process and solve problems that enable transactions to be approved and confirmed across the network.

Meanwhile, more participants continue to join the Bitcoin ecosystem, given that the number of BTC addresses holding more than 0.1 coins recently reached an ATH of 3,309,387.

Furthermore, Brazilian city Rio de Janeiro revealed plans to become “Crypto Rio” by having 1% of its reserves in Bitcoin.

MoonXBT Eliminates Fees on Multiple Spot Trading Pairs

MoonXBT, a global crypto-social trading platform headquartered in the Cayman Islands, announced on Saturday that it has introduced a zero-fee policy on multiple trading pairs for the spot market to lessen the burden of the retail customers exposed to the bearish market.

The platform said the zero-free policy would run indefinitely until further official notice is announced by the firm. MoonXBT stated that it has eliminated transaction fees for many crypto trading pairs including BTC/USDT, ETH/USDT, BNB/USDT, ADA/USDT, and XRP/USDT.

The exchange mentioned it is considering adding more trading pairs to the no-fee list in the future based on how users react to the current zero-fee policy. All users will enjoy zero-fee transactions for both maker and taker orders without trading volume requirements or other pre-conditions, the firm said.

George Lee, the Chief Operating Officer at MoonXBT, talked about the development: “In spite of the fact that our trading volume is moderate compared to Binance or others, we have reserved enough power to handle the current market situation. No matter if it’s a temporary correction or a bearish period, we want to take measures to make sure our users can cope with this phase together with our platform. We also want to make it easier for new users who want to try crypto investing during a relatively quiet time.”

Apart from that, MoonXBT has also introduced mental support services to help users to cope with the trading hardships. Users can take advantage of the social trading platform’s community forum to exchange views and share strategies to discover effective ways to manage the market and lessen fears and anxieties.

MoonXBT also said it is developing new products designed to potentially hedge the crypto downturn. Furthermore, the social trading platform said it is looking into new business sources, new partnerships, and new pricing models to offer consistent benefits to users while making the exchange sustainable.

Lastly, MoonXBt said it has prepared 10,000 USDT for an airdrop to enable upcoming new users to collect free money in cryptocurrency airdrops.

Price War Sets In

MoonXBT’s zero-fee policy comes after Binance exchange recently introduced its zero-fee trading for Bitcoin transactions.

Early this month, Binance.US started offering zero-fee trading to all new and existing users to trade Bitcoin against the US dollar, Tether, USD coin, and BinanceUSD. The announcement by Binance.US, during that time, brought several stocks like its rivals, including Coinbase, Robinhood Markets, among others, down.

The move, which came amid a crypto winter that has prompted several major crypto firms to announce massive layoffs, also signals the beginning of a price war and a potential consolidation of the industry.

The move is set to increase pressure on other crypto exchanges to lower trading fees as competition heats up.

Starknet v0.13.1 Launch: Embracing EIP-4844 for Lower Costs and Enhanced Stability

The Starknet v0.13.1 update, announced for release soon, brings several significant improvements and features, promising to significantly reduce transaction costs for its users. A key highlight of this version is the incorporation of Ethereum Improvement Proposal (EIP) 4844, which aims to substantially reduce the data storage costs on Ethereum, thereby lowering the overall transaction costs on Starknet. This implementation is particularly noteworthy as it addresses one of the primary expenses associated with Starknet transactions, which currently constitute a significant portion of transaction costs.

Starknet operates as a Layer 2 decentralized ZK-Rollup on the Ethereum blockchain, offering scalability and security at the level of Ethereum. It utilizes STARK technology for computational integrity and features a Validity Rollup, allowing for unlimited scalability while maintaining the security and decentralization inherent to Ethereum. Developers can leverage Starknet to deploy diverse business logic, benefiting from its features such as Cairo—a programming language tailored for Web3 and the native smart contract language for StarkNet, Account Abstraction, and Appchains.

The EIP-4844 upgrade, expected to be confirmed in Q1 2024 after a series of shadow forks and testnet updates, is anticipated to boost the transactional capacity of L2s on Ethereum by 600%. This will be a significant development, making transactions more cost-effective for Starknet users and enhancing the platform’s appeal to a broader audience.

In addition to Starknet, other blockchain initiatives are making waves globally. For example, the Hashgraph Association has entered a $250 million partnership with the Saudi Ministry of Investment. This five-year agreement focuses on fostering innovative investment opportunities in Saudi Arabia, supporting local companies, and attracting international entities to the Kingdom. This collaboration is part of Saudi Arabia’s broader efforts to embrace emerging technologies, including blockchain, as it seeks to diversify its economy and become a hub for technological innovation.

These developments in the blockchain and crypto space signify the ongoing evolution and adoption of these technologies across various sectors and geographies, underscoring their potential to transform traditional financial systems and business operations.