Bitcoin fees have skyrocketed to the point where one bitcoiner was told by blockchain.info, a bitcoin wallet website, that their fee of around $4.50 was insufficient, recommending they pay $26 to move their money.
That means bitcoin now can’t compete even with Western Union for international transfers and is a far more inferior alternative to PayPal, Visa or banks, in a somewhat sad twist for the once promising currency.
The reason is because bitcoin’s capacity has been kept very limited, at just 1MB per 10 minutes, which is less storage space than the first floppy disks had when first launched back in 1986.
It was kept limited by developers refusing to increase the protocol parameter above 1MB in the main bitcoin node implementation, Bitcoin Core, which back in 2015 had some 99% share of the bitcoin node market.
That led to a civil war which appears to have ended up in a stalemate with the community and miners seemingly divided on whether they should increase the blocksize or whether they should adopt segregated witnesses (segwit), a proposal by Blockstream which merely increases capacity to around 1.7MB, probably not sufficient to handle current demand, but at least it is higher than the first floppy disks.
Since capacity is limited, the only way to move bitcoin in a time frame of hours, rather than days or weeks, is to pay more in fees than others, leading to a situation of ever increasing fees, now averaging around $4.
The situation has become unbearable for most, leading to a pivot towards ethereum which has seen its market cap grow to around 60% of bitcoin’s market cap – a very first.
Their fees are far lower, with transactions confirming in mere seconds, but since demand for ethereum is increasing very quickly, pressure on the network might start developing in some months if it continues at this rate.
However, ethereum has a clear roadmap to increase capacity through Proof of Stake and Sharding to the point of as good as unlimited, so any such pressure, if it comes to it, would be only temporary, as developers rush to get out the code.
Lucky for them, the Ethereum Foundation is now very rich, so can afford to add resources to meet the demand in what may turn out to be ethereum’s sink or swim moment as people, businesses, investors, focus their attention on ethereum.
That means, it may be ethereum’s moment to shine or fail now that it has everyone’s attention, similar to bitcoin’s moment in 2014-15 when mainstream businesses started accepting it for payments.
We know what happened then, we’ll have to wait and see what happens now in this second round for this very innovative technology which promises to disrupt almost all industries.