The price of ETH has hit all-time highs as it crossed the $3,000 threshold for the first time this past Sunday and has traded over $3,300 today.
Source: Kraken
There may be an answer in the concurrent boom in NFT sales which is essentially powered by the Ethereum network. As you may know, Ethereum was created back in 2015 to provide the foundation for building decentralized applications, or DApps on an open-sourced platform that is not controlled by Big Tech.
According to the WSJ, around seven million new Ethereum addresses, which are accounts holding ETH, were created in the first four months of 2021. There are now more than 55 million ETH addresses, according to analytics firm IntoTheBlock.
The downside of success
Every company wants more traffic, but these surges in Ethereum usage also have a downside for the network in terms of speed and cost.
Ethereum’s aspirations to be the world’s computer have been lofty and encouraging but also difficult to achieve from a technical perspective. Ethereum can handle 18 TPS (transactions per second) while Visa, for example, routinely handles around 76,000 TPS. Welcome to the endlessly spinning loading wheel as you wait for a transaction to complete.
Also, the transaction costs skyrocket on the Ethereum network as the price of ETH goes up. That’s because miners on the network get paid in ETH to actually process the transactions, and they charge “gas fees” to do so.
These fees which are basically like tolls for access to the network hit a record $38 in February, according to statistics website BitInfoCharts, and were $30 on April 20. They are way higher now with the price of ETH in the $3000s.
Enter the competitor blockchains
Top Shot is one of the biggest sellers of NFTs currently and runs on its own blockchain network called Flow. Dapper Labs, the group behind Top Shots and Flow, made the conscious choice not to use Ethereum because of its limitations in terms of speed and cost. There are a host of new blockchains that promise better TPS and low or no gas fees like Binance Smartchain, Solana, Cardano, Cosmos and Polkadot.
It’s all well and good until they grow to the size of Ethereum at which time they could have the very same scaling problems. But this is all a moving target for the foreseeable future until the underlying technical scaling issues get solved.
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