Not only the trading volume is currently reaching highs on the Ethereum blockchain. The fees are also skyrocketing again and again. Is Ethereum developing into a playground for the wealthy?
The Ethereum network is at a crossroads. While the increasing trading volume and the staking test run on the Beacon Chain testify to a great demand for Ether, the fees for narrow wallets have become prohibitive. That makes other platforms like the Binance Chain more and more attractive for small investors. Is Ethereum losing its status as a world computer?
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Ethereum trading volume suggests record quarter
For Ether investors, it’s a pitying topic: fees, or in Ether parlance: gas fees. According to bitinfocharts, the average fees have not been below 5 US dollars since January and only reached a sad record of 38 US dollars on February 23. At currently 20 US dollars, the peak has corrected itself significantly downwards. However, there is no question of affordable fees.
The increase is above all evidence of an exponentially increasing trading volume. Ryan Watkins, an analyst at Messari communicates via Tweet , the previous “sales figures” point to a record-breaking first quarter. Based on previous transactions, Watkins projects the potential trading volume processed in Q1 to $ 1.6 trillion. For comparison: In Q1 2020, the trading volume processed via the Ethereum Blockchain was 116 billion US dollars.
The facts speak for themselves: Ethereum is experiencing a blooming phase, never before has the rush been so great. According to Ryan Watkins, the trading volume is the best evidence that investors are not migrating to other blockchains. But this could only be a snapshot.
Ethereum killer Binance?
As the on-chain data platform Coinmetrics points out , the high transaction fees have “led to new rounds of talks about potential Ethereum killers”. If the fees remained at such a high level, other smart contract platforms could “overtake Ethereum’s great lead in decentralized applications”. The hottest contender is therefore the Binance Smart Chain (BSC).
The Binance Smart Chain is developing into the new DeFi hotspot. The Total Value Locked (TVL) is almost 10 billion US dollars, more than a quarter of the Ethereum blockchain. In contrast to Ethereum, the transaction fees are in the cent range. In addition, transactions can be carried out faster than with Ethereum. Small investors in particular see the Binance Smart Chain as a viable alternative to Ethereum.
This trend is impressively reflected in the price performance of the Binance Coin (BNB), which has already moved up to third place among the largest crypto assets with a market capitalization of over 37 billion US dollars. The growth of the DEX PancakeSwap (CAKE) based on the Binance Smart Chain also underlines this trend. In addition, the Binance Smart Chain is compatible with the Ethereum Virtual Machine (EVM). One downer, however, remains: In the hands of the largest crypto exchange, Binance, the BSC network is highly centralized.
The exorbitant fees in the Ethereum network have not yet led to a decrease in the daily active ETH addresses. But the longer the switch to Etheruem 2.0 drags on, the more Ethereum runs the risk of becoming a marketplace for higher earners.
Only with the transition to phase 1 should the fees normalize again. The implementation of the first scaling solutions will increase transaction throughput by a factor of 6,400. The transaction costs are likely to fall dramatically as a result. But until then, ether investors will still have to accept the exorbitant fees. The start of phase 1 is roughly scheduled for September this year.