Bitcoin and Ethereum fees skyrocket due to meme coins and BRC-20s
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(Kitco News) - The global trend of rising inflation has made its way into the blockchain realm as transaction costs across the two most popular blockchains, Bitcoin and Ethereum, have skyrocketed as of late thanks to the ongoing meme coin mania, which has led to network congestion and increased confirmation times.
The struggles for Bitcoin follow the introduction of BRC-20s, which are essentially non-fungible tokens (NFTs) on the Bitcoin blockchain. BRC-20s were made possible by the introduction of the Ordinals protocol last year, a platform that allows for arbitrary content like text or images to be inscribed on individual Satoshis, the smallest unit of Bitcoin.
As a result of the uptick in activity related to Ordianls and BRC-20s, the Bitcoin network has experienced its highest level of congestion in years, resulting in a backlog of transactions due to the limited block space available. Data from Mempool shows that there are currently more than 351,000 unconfirmed transactions and the memory usage has been maxed out.
Unconfirmed Bitcoin transactions and memory usage. Source: Mempool.space
The main issue with BRC-20s is that, unlike conventional token standards like Ethereum’s ERC-20 standard, BRC-20 does not utilize smart contracts and operates only with wallets supporting the Bitcoin blockchain.
This means that all BRC-20 transactions must be conducted on-chain, which has quickly filled up the limited amount of space in Bitcoin blocks. According to data provided by CryptoQuant, the daily transactions on the Bitcoin network hit a new record of 682,000 on Tuesday, which is “a significant increase from 250K daily transactions at the start of 2023.”
“The average fee per transaction has skyrocketed to $30.82, the steepest it has been since February 2021,” CryptoQuant said.
The issue got so bad on Monday that Binance, the top cryptocurrency exchange in the world, was forced to halt Bitcoin withdrawals twice and institute a higher withdrawal fee before they could once again start processing withdrawal requests.
While some in the community have maligned this new development, with at least one high-level developer calling for a spam filter to be implemented on Taproot transactions to block Ordinals and BRC-20 tokens, Bitcoin miners couldn’t be more pleased with the network congestion as it has led to a surge in mining fees.
“These high transaction fees have started to make up a large portion of miners' earnings,” CryptoQuant said. “Currently, daily fees constitute 42.6% of the rewards miners receive for adding new blocks to the blockchain. This is the highest percentage seen since December 2017, indicating that the current state of the Bitcoin network is impacting all its stakeholders, from everyday users to miners.”
The Lightning Network, a layer-two scaling solution for Bitcoin, has also benefited from the rise of BRC-20s as more crypto firms have now started to explore integrating the protocol as a way to reduce the cost to transact with Bitcoin.
Meme coin trading causes ETH fees to spike
On the Ethereum network, the rise of meme coins like Pepe (PEPE) and Sponge ($SPONGE) has been the main culprit behind soaring transaction costs as traders have utilized decentralized exchanges like Uniswap (UNI) to trade the tokens on-chain.
Data provided by Etherscan shows that the average transaction cost has increased from a low of 9.07 gwei in October to a high of 155.8 gwei on May 5, and currently averages 103.2 gwei. At the current price of Ether, 100 gwei costs approximately $3.74.
Average Ethereum gas cost. Source: Etherscan
According to Etherscan, over the past hour, there has been an average of 173,000 unconfirmed transactions on the Ethereum network.
As a result of the increase in transactions, validators on the network have earned a total of 1,571.2 ETH in transaction costs. This figure hit a peak on May 6, when validators earned a total of 2,168 for confirming transactions. For comparison sake, the amount earned by validators on April 9, prior to the spike in meme coin activity, was 270 ETH.
This issue is nothing new for Ethereum as its struggles with scalability have been well-documented going back to the launch of Crypto Kitties in 2018. But the fact that the network has undergone several high-profile upgrades over the past year, including the Merge and the Shapella hard fork, has many wondering if the network will ever be able to meaningfully scale or if getting used to high transaction costs during times of peak network congestion is something that will have to be tolerated.
As for now, there are no quick fixes to the high fees on either Bitcoin or Ethereum, and many have just accepted that they are the cost of doing business on decentralized networks amid the worst banking crisis since 2008.