Ethereum has been a talking point for the cryptocurrency space for a lot of 2020 as the programable blockchain geared up for its ETH 2.0 upgrade. But, more than this, Ethereum has seen its value climb rapidly, and increased use and potential as the DeFi wave started gaining momentum as well.
This all bodes well for Ethereum, a project that pioneered blockchain generation 2 with its smart contracts, and held a lot of potentials. But there has been one big negative to come from this increased action as the fees associated with the transactions have risen to new highs.
In fact the last two days have seen new all time high translation fees reached on Ethereum and to blockchain data platform Blockchair, the average transaction fees paid by Ethereum users have reached a new record average of over $7.50.
The reason for this spike in transaction fees correlates back to the boom of DeFi and the role that Ethereum is playing in this space. But, there are other reasons why Ethereum transaction fees have gotten to this stage, as outlined by co-founder Vitalik Buterin.
From June to July, when Ethereum fees were also spiking to new levels, Buterin called for reform to the cryptocurrency’s fee system, suggesting fees this high could undermine the security of the network.
Buterin says miners’ increasing reliance on transaction fees may incentivize selfish mining practices. This, in turn, could disrupt how transactions are processed.
To counter this, the co-founder has suggested Ethereum improvement proposal 1599. This proposal would result in the blockchain burning base transaction fees to reduce the miner’s reliance on them as a source of income.
Bad business for DeFi
While the fee increase seems to be related to the boom of DeFi, it is not doing the burgeoning space any good either. The network processed an all-time high of $6.87 million in total fees on Thursday.
Speaking to Cointelegraph, Synthetix (SNX) founder and CEO, Kain Warwick warned that high fees were impacting the growth of DeFi, stating:
“In the last three months, we’ve gone from an environment where DeFi was expensive to use and a little bit slow, to now, [where] for a lot of people it’s prohibitively expensive.”
Ethereum fees have spiked nearly 100% over the past 24 hours as congestion saw transaction expenses smash the previous high of $3.27.
The most recent spike seems to be around the doomed YAM protocol which saw numerous SNX stakers report transaction fees as high as $99 when seeking to collect weekly participation rewards. Reddit user Willy 3380 posted:
“To require a transaction fee of 99 dollars is beyond ridiculous. This will be a major roadblock to growth if someone on the team does not address this.”
A need for scaling
Scaling has been at the heart of the blockchain debate and one of the biggest hindrances for its continued growth and adoption. Whenever there is a burst of excitement and a drive on the network, many blockchain’s suffered.
This appears to be another instance where the blockchain space is not read to accommodate an influx of interest without there being negative knock-on effects that push back growth potential and damage organic growth.
Fees like this in a new DeFi space will certainly turn people away, and this has been happening since before the days of even CryptoKitties on Ethereum.