Report: DeFi ushers Ethereum transaction fees to 2018 highs

The increase in Ethereum transaction fees can lead to micropayments being expensive, especially for Dapps. It reached the benchmark of 2018 highs.

By · Jul 24, 2020 . 6min read

Photo by Burak K from Pexels

A report published by crypto data firm, Coin Metrics discovered that the unexpected rush in demand for decentralized finance (DeFi) products proceeds to hike up the price of Ethereum transaction fees. Yet this might be a good thing in some ways. Ethereum network charges transaction fees each time a transaction is completed. Recently, average Ethereum fees are nearing $0.4, the largest since the middle of 2018, according to Coin Metrics.

Ethereum transaction fees soaring high post 2018

The silver lining? High transaction fees “typically imply high demand for block space, and develop more revenue for the miners guarding the network,” wrote the firm.  DeFi attributes to non-custodial financial services, like lending protocols or decentralized stablecoins. Most of the top DeFi protocols are live on Ethereum. It’s now a $3 billion industry. And it’s proliferating; just two weeks ago, total locked value over DeFi protocols stood at $2 billion.

It further pointed out how much ETH was being transferred every day in most of July. Over 1 million ETH was transferred each day, which is far more than usual. Cloudflare outage on July 17 crashed some popular cryptocurrency wallets. Ethereum transaction fees were up by 30.3% in the past week’s report due to enhanced demand.

Whereas Bitcoin transactions decreased by 5%, Ethereum transactions expanded by 5.5%. All acknowledgments to “the continued rapid growth of decentralized finance applications.” However, make no error: high transaction fees aren’t specifically good news. They make the network “prohibitively costly” to use, stated Coin Metrics in a statement.

Vitalik Buterin, the co-founder of Ethereum, tweeted today that high fees also make the network less secure. Buterin quoted a Princeton paper that described how high transaction fees constitute “wealthy” blocks that are “attractive” aims for self centered miners to loot. Coin Metrics stated that high transaction fees hit dapps such as gaming and collectibles the hardest as they “depend on large amounts of low-cost transactions.”

Conclusion

Ethereum’s high transaction fees suggest the network isn’t furnished to manage lots of activity, restricting the scope of the network. Across the past few months, Ethereum’s network utilization has floated at around 95%. If it hit 100%, the network would crunch to a halt and become astonishingly costly to use. Moreover, it will seem useless for DApps that depend on it for micropayments.

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