Network fees for Bitcoin and Ethereum have spiked in correlation with recent price increases. This has led to an increase in activity on cheaper blockchain networks, and may price out entire use cases from the dominant two chains.
The price of Ethereum saw an increase from about $244 a week ago to $317 at time of writing, with a recent high of $327 on Monday. Bitcoin similarly rose from about $9,360 a week ago to $10,991 at time of writing. As a result of the rise in demand which prompted this increase, both top networks have become more congested, resulting in a fee spike. Bitcoin's median transaction fee has risen to $2.13, and Ethereum's reached $0.85. Average transaction fees for both chains remained even higher
($3.87 and $1.69 respectively).
Transaction growth in cheaper cryptocurrencies to deal with demand
The rise in transaction fees on the Bitcoin and Ethereum networks have been paired with increases in transaction numbers across cheaper-to-use networks. Both Litecoin and Dogecoin have seen a rise in transactions over the past three months, with Litecoin growing from about 31,000 daily transactions three months ago to about 48,000 today, while Dogecoin rose from about 31,000 to about 52,000. Both networks currently sport sub-cent fees.
The growth in alternative chains can be correlated with the increase in demand combined with the inability for the top two networks to successfully scale. The Lightning network, the primary off-chain scaling solution for Bitcoin, has largely shown stagnant networks for the past year. Ethereum scaling hopes have largely revolved around the ETH 2.0 upgrade, which includes a move to proof-of-stake consensus, scheduled for release this year.
Fee spikes indicate surging demand but price out some use cases
While surging transaction fees can be an indicator of rising demand on the more popular blockchains, they can also make some popular use cases no longer viable. With Bitcoin and Ethereum, networks typically operating close to or at capacity, price increases and spiking transaction fees show a clear correlation. This is not the case with networks such as Dash and Dogecoin which typically operate well below capacity.
As a result, some use cases become much more difficult or less profitable with higher fees. Several-dollar fees can invalidate many smart contract applications, such as gaming. High Bitcoin transaction fees price out regular transactions for small payments, including small subscriptions for content creators, where a consumer would normally be willing to pay a $1 USD valuation monthly to support a creator, an amount which is below the price of a modern Bitcoin transaction fee. As we've seen transaction activity migrate to cheaper chains during high-fee periods, we may see the same in regards to entire use cases in the future.
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