Ethereum average transaction fees reached a record high of USD 5.53 on 2 July 2018, beating the previous record of USD 4.15 on 10 January 2018, far higher than the transaction fees between USD 1 and USD 2 during the CryptoKitties craze in December 2017 which caused a major backlog on the Ethereum network. The cause of the current spike in transaction fees, which is ongoing as of this writing on 4 July 2018, is FCoin’s voting process for listing new cryptocurrencies on their exchange.
FCoin is a new cryptocurrency exchange that launched in China during May 2018 and has seen its trading volume quickly grow to billions of dollars per day. The reason FCoin has become so popular so quickly is its transaction fee mining, where users are compensated with the exchange’s native cryptocurrency, FT, for trading fees. This basically makes the exchange feeless, and trading is the only way to ‘mine’ FT, so people are making as many trades as possible just to acquire FT. Exchanges like Coinbene and Bit-Z also achieved high trading volume by offering transaction fee mining.
The specific way FCoin is causing Ethereum transaction fees to skyrocket is its voting process for new cryptocurrencies to be listed on the exchange. Cryptocurrencies with the highest number of cumulative deposits from unique addresses will be listed, and people seem to be gaming this system by creating numerous new Ethereum addresses. Furthermore, FCoin requires users spend at least 85 gwei for gas to ensure the deposits are processed, which is much higher than the usual price of 10-20 gwei. Indeed, the Ethereum gas price is now averaging near 85 gwei which is proof that the voting process is dominating network gas prices.
Transaction frequency has hit the lowest levels since November 2017, with fewer than 490,000 Ethereum transactions on 2 July 2018, the same day fees hit record highs. This indicates that people are choosing to send fewer transactions to avoid the fees. This behavior is quite the opposite of early January 2018 when fees hit their previous all-time highs and transaction frequency exceeded 1 million per day.
The current FCoin voting issue and the past CryptoKitty backlog shows how one of Ethereum’s greatest strengths can lead to one of its greatest weaknesses. Ethereum is ideal for running numerous blockchain-based decentralized apps, including exchanges, and any one of these has the potential to clog the network and force transaction fees to levels that hurt the Ethereum economy.
This is probably why Ethereum’s development team, led by Vitalik Buterin, is focusing most of its efforts on scaling to handle more transactions at a lower cost. The primary proposals for scaling Ethereum are sharding the blockchain and switching to proof of stake.
Follow BitcoinNews.com on Twitter at https://twitter.com/bitcoinnewscom
Telegram Alerts from BitcoinNews.com at https://t.me/bconews
Image Courtesy: Pixabay