Ethereum ‘Almost Full’ as Controversial Coin Eats Up Capacity

The digital ledger that is considered to be superior to the bitcoin version is running out of capacity. That’s the warning given by Ethereum co-founder Vitalik Buterin last week, who said that transactions based on Ethereum may be too expensive for some users.

According to data tracker Etherscan.io, Ethereum’s network utilization has soared to 90%. Buterin believes that as usage increases, transaction costs will continue to rise, which will make potential users hesitant to use Ethereum.

Ethereum started to become congested about two years ago with the rise of the digital game “CryptoKitties.” Thousands of new coins subsequently took up space on the network, most of which turned out to be worthless. As ICOs went bust, a new tenant took over Ethereum’s position, namely Tether (USDT).

According to data research agency Ethgasstation.info, Tether has processed $260,000 in transaction fees on Ethereum’s digital ledger in the past 30 days. That’s 17.5 times more than CryptoKitties and six times more than IDEX, the world’s largest decentralized exchange.

As more and more new coins emerge, Tether's use is also increasing. The company's market value recently exceeded $4 billion, up from $2.7 billion the previous year, according to data from CoinMarketCap.com. John Griffin, a finance professor at the University of Texas at Austin, estimated in July that at least 40% of Tether runs on the Ethereum network. Coin Metrics recently said that Tether is used in 40% and 80% of all transactions on Binance and Huobi, the world's two top crypto exchanges.

As Tether takes up more capacity, there is less room for other developers. Ethereum was enthusiastically sought after when it was born because of its superior system mechanism to Bitcoin. It also has additional features that allow users to automate tasks and even allow users to establish so-called autonomous companies that run themselves through software. But according to data tracking website DappRadar.com, most of the popular DAPPs currently run on competing digital ledgers.

Some developers are currently sitting back on Ethereum, waiting for it to tweak its technology to increase network capacity, said Jeff Dorman, chief investment officer at Arca, a Los Angeles-based asset manager that invests in cryptocurrencies and other digital tokens.

“So the biggest impact right now is that developers may be incentivized to wait until this transition happens before fully committing to developing on Ethereum,” Dorman said. “The scope is not helping.”

Ethereum is still trying to figure out how to achieve its ambitious Ethereum 2.0 vision — something that would require a major overhaul of its technology that some worry might not work.

While Ethereum currently uses computers called miners to verify transactions — a setup that Bitcoin also uses — it is moving toward so-called staking, an entirely different way of verifying transactions. Technologies such as sharding, in which certain groups of computers track only specific transactions rather than all transactions on the network, will also help. But such a technological shift “is not guaranteed and is still nascent,” Dorman said.

The Ethereum blockchain has been ‘almost full for several years,’ Buterin said in an email to Bloomberg. “I think it’s still good to develop applications, but anything substantial should be developed with scalability technology in mind so that it can withstand the higher transaction fees that will come with further growth in demand for Ethereum.” In the long run, Ethereum 2.0’s sharding feature will certainly solve these problems.”

According to Etherscan.io, the number of Ethereum transactions has actually fallen from its peak in January 2018. According to BitInfoCharts.com, Ethereum’s average transaction fee is still many times lower than Bitcoin’s, but it is highly volatile.

Tether was introduced in 2015 as a way to provide liquidity to exchanges as concerns about illegal use linger, making it difficult for them to obtain banking services. In April, the New York Attorney General accused the company behind Tether of participating in covering up losses and mixing customer and company funds. (Chain Group Finance)