Ethereum Network Use Hits a New All-Time High — Will ETH Price Follow?

According to a recent report by Delphi Digital, the total gas used on the Ethereum blockchain has reached an all time high and it seems like this the figure is set to increase. Gas is the measure used to price fees on the Ethereum blockchain, and the overall use of gas on the network has been rising since the beginning of 2020. 

Gas Used vs. Max Gas Possible. Source: Delphi Digital

The total gas used is unlike the transaction fee metrics in the Bitcoin blockchain. On the Ethereum network, transaction and smart contract fees are determined by the gas required and price of gas, a mechanism that allows the fees to be dynamic and somewhat detached from the price of Ether (ETH). 

The amount of gas used in a given transaction is determined by the computational complexity of said transaction. On the other hand, the price of gas is chosen by the person executing the transaction and is priced in Ether. The price is ultimately determined by Ether miners, who either accept or decline transactions based on the price of gas.

USDT and decentralized exchanges take the lead

While the gas usage is at an all time high, the sheer number of transactions on the Ethereum blockchain is far from the all-time high of 1,349,890 transactions reached on January 4, 2018. 

This means that the increase in the total gas usage figure comes from a higher use of smart contracts which are more complex and therefore require more gas.  

According to ETH Gas Station, the usage is coming mostly from USDT, with around $1.61 million spent just in Ethereum gas fees. This figure is followed by DeFi applications and a few scams and ponzi schemes. USDT is also leading in terms of average gas price used, at 35.5 Gwei. 

Following the USDT stablecoin, decentralized exchanges (DEX) seem to take the lead in terms of popularity. According to DappRadar, IDEX is the most used dapp by sheer number of transactions and both IDEX and Kyber are in the top 3 of dapps by users on the Ethereum network. 

A recent survey has also shown that the highest awareness and usage in DeFi come from decentralized exchanges.

Higher transaction fees and gas limitations

The increase in usage on the Ethereum network has led to an increase in average transaction fees, as miners prioritize transactions with higher gas. According to data from glassnode, the average transaction fee has quintupled from $0.08 in January 2020 to $0.41 at the time of writing. This also accounts for around 10% of miners’ revenue. 

The amount of overall gas used is restricted to the block gas limit set by miners and this serves to limit the size of the Ethereum blockchain by determining how many transactions fit in a block. The gas used in each block has been increasing steadily, rising from 69% in January to 95% at the time of writing and also nearing the currently defined limit.

Given the increased gas usage currently seen on the network, and the associated block gas limit, it is possible that Ethereum will be faced with network congestions in the near future due to a number of factors. If gas usage rises to the block limit level, users will have to compete with higher gas prices in order to execute transactions and smart contracts.

Moreover, a sudden crash in the price of Ethereum can lead to higher fees and network congestions as seen during the crash of March 12 when, according to a report by The Block, average fee costs increased from $0.16 to $1.04. 

In a high volatility situation like this, traders may find network congestion quite cumbersome as leveraged positions on DeFi platforms and centralized exchanges may be liquidated before they can act.

As usage nears the limit set by miners, an increase in the block gas limit may be required. The last increase was in September 2019 and it saw the block gas limit increase 25% from around 8 million to around 10 million. 

However, this change will further exacerbate Ethereum’s blockchain size which already sits at almost 140 GB. As so, it seems like there is no easy solution and Ethereum is faced with quite a challenge when it comes to scalability.