On the face of it, Bitcoin and Ethereum continue to go from strength to strength. In January 2021, the number of Bitcoin addresses that received or sent this cryptocurrency reached an all-time high and was over 22.3 million. During January, the price of Bitcoin hit a high of over $41,000 as demand from institutions drove the price higher, resultant from hedge fund managers (and even quoted companies) disclosing they had or intended to invest into Bitcoin. Indeed, during this first month of the year, Larry Fink, CEO of Blackrock (the world’s biggest fund manager with in excess of $8 trillion of assets), endorsed Bitcoin by saying Bitcoin: “had caught the attention and could largely replace gold but warned of its growing popularity that has a real impact on the US dollar”. Interestingly, according some reports, nearly 10.7 million Bitcoins (which equates to almost 60% of all Bitcoins created to date) did not move last year.
Performance of Ethereum
Source: Coingecko.com
Ethereum’s price has also been driven higher, having risen by over 670% in the last year alone, and the number of individual Ethereum wallets has grown from 34million at the beginning of 2020 to over 51million at the end of 2020. So, ostensibly Bitcoin and Ethereum’s success and adoption is growing. However, there is a significant problem faced by both these Blockchains which could well prove to be their Achilles heel - not only are these Blockchains slow to process and record transactions but the cost to process a transaction comes at a high price.
Cost to process a transaction on the Bitcoin Blockchain
Source: ycharts.com
In the last year, the cost to process a transaction on the Bitcoin Blockchain has risen from an average Bitcoin transaction fee (BAFT) of 0.85 to over 18.9 BAFT . This means that for low value items potentially the cost to record an entry could be greater than the value of the transaction. Meanwhile, the cost to process a transaction on the Ethereum Blockchain has also risen from 11 to over 233 although, in June 2020, ‘gas fees’ hit a massive 709!
Average Ethereum Gas price
Source: ycharts.com
In order to process a transaction on the Ethereum Blockchain one has to pay ‘gas fees’ which are, in effect, the payment made to the miners for getting them to cover the computing of the transaction and have it added to the Ethereum Blockchain. The amount of money being spent on Gas fees is significant - just look at the fees as of 10th February 2020 in the last 24 hours just the top 5 biggest accounts and they generated over $11.7 million of fees on the Ethereum Blockchain
Top largest users of ETH gas fees in 24 hours
Source: Etherscan.com
However, whilst this is good, if you own ETH gas and you have seen the price increase significantly again (such as Bitcoin), it means that it is expensive to post a transaction on the Ethereum Blockchain. As an example, to buy a $500 of a DeFi token only in this last week, the cost to execute this one transaction was $107 i.e., over 20% of the value.
Aside from this, there are alternative Blockchains that can be used and it would appear these alternatives are gaining in popularity since they have all seen their prices appreciate strongly in the last month. Here is a small selection of firms which run their own Blockchain with the % representing the amount their tokens have increased in value from 11th January to 10th February 2021: Chainlink (72%), Near Protocol (111%), Polkadot (162%), Stratx (105%) and Waves (57%).
