Ethereum is barely two years old, but the currency is now already handling half of bitcoin’s transaction volumes, even though the later was launched some nine years ago, during the last decade.
According to data by blockchain.info and etherscan, bitcoin is currently handling around 220,000 transaction with a max daily capacity of around 250,000 transactions, while Ethereum is now handling 125,000.
No other currency comes anywhere close. Litecoin, Dash, Monero and all the rest handle around 4,000 transactions or, at best, 10,000 transactions on a good day. Making Ethereum the only digital currency since bitcoin to handle significant volumes which currently stand around the same level as bitcoin’s last year.
Who is making all these transactions is not easy to say. Ethereum does currently have around the same market cap as bitcoin last year, so it might be simply new users, but bitcoin is employed in commerce with some household brands accepting it for payments.
Ethereum, on the other hand, has wider uses than just finance. It is used to power electric cars charging stations, for example, as well as to ensure goods authentication and to allow neighbors to trade solar power energy through a micro grid.
On top, there are all the ICOs as well as projects like Plutus which aims to turn your smart phone into a credit card by allowing you to pay with eth any merchant as they convert it to dollars on the fly.
On the other hand, bitcoin’s real demand is probably higher than just 250,000 transactions a day, but, its capacity is limited, which may mean that regardless of why it’s not handling more transactions, the utility it provides is that of 250,000.
Compared to ethereum, those transactions are very expensive and super slow. So it may be the case many of ethereum’s current transactions are from businesses which have been priced out from bitcoin and have thus had to use other public blockchains.
Those businesses are diverse in nature. Miners payouts, perhaps BitPay merchant’s payout in an integration through Shapeshift, maybe exchanges which have hedged, maybe Venezuelans who after getting into bitcoin last year may have now been priced out and may have begun looking at eth.
That means the nascent currency is forming considerable network effects and very quickly because transaction volumes tend to highly correlate with price as they are reflective of utility which is what gives anything value.
On top, it has carved its own niche ecosystems and network effects where it pioneers because of its smart contracts. Token sales are one, which have spurred a number of new innovative projects all revolving around eth. The industrial use of smart contracts is another, as is the financial use of smart contracts.
Moreover, it may not be competing with bitcoin even on payments anymore because that currency may have abandoned the payments market due to its very high fees which have now reached $2-$3 per ordinary transaction, leaving it open to more nimble newcomers.
Is Ethereum Ready?
Can ethereum handle this growth rate? It depends how fast adoption and development moves in the coming years, but eth can currently handle around 20 transactions per second, which is close to 10x of bitcoin’s current capacity.
That means, even in its current form, it can at full capacity handle some 2 million transactions a day. The roadmap plans to increase that through Metropolis, Proof of Stake, Raiden, and the grand prize, sharding, when it may be able to handle as good as unlimited capacity.
So the currency and platform will probably be able to operate at above demand for the foreseeable future. Able to easily handle bitcoin’s current capacity and probably seven or 8 times more with no problems before gradually scaling it further to the point of, eventually, as good as unlimited capacity.