KEY POINTS

  • Increased hashrate leads to increase security in the Ethereum network
  • Higher gas fees, however, lead to more unconfirmed transactions
  • Analysts are divided on whether high gas prices are good for the network

The Ethereum network’s hashrate has increased to 201,000.000 GH/s, a 20-month high that has gotten some analysts to predict a further upside in Ether’s value in 2020.

The increasing interest in Decentralized Finance (DeFi) has significantly impacted Ether’s hashrate. According to Etherscan, the average hashrate hit its highest Aug. 9 at 295,911.9974 GH/s. By contrast, the lowest was recorded July 30, 2015 at 11.5297 GH/s. 

Demand for Ether significantly increased because of DeFi. While most DeFi projects accept other coins or even USD for their projects, the recent DeFi projects that exploded in popularity are fueled by investors putting Ether in exchange for DeFi coins using the platform called Uniswap, where anyone can quickly trade their ETH for other coins unlike in regulated exchanges where additional KYC could mean it would take a few days before an investor can get approved to trade. DeFi projects also utilize Uniswap for adding liquidity and immediate sale of their coins.

The consequence is higher gas fees, or the transaction fee to facilitate a trade. The average gas fee as of Thursday is 223 gwei and the maximum is at 104,860 gwei. Going to Uniswap on Thursday, exchanging 0.1 ETH ($39.78) for another coin would require $18.04 as gas fee or almost half of the value that is to be exchanged. In another coin, exchanging 0.1 ETH required a gas fee of $39.10. Trader Josh Rager said earlier that he decided to pass on a token pre-sale after seeing a $1,292 gas fee:

Transaction fees on Ethereum have already outpaced Bitcoin. “The gap is now $1 million a day,” said Cryptowat.ch, a market data provider. 

This higher gas fees then contribute to increased hashrate as miners compete to be the one that confirms the transactions. This resulted in traders trying to increase their fees just to get confirmed. As of Thursday, there are 168,637 unconfirmed transactions on the Ethereum network.

While many analysts think high gas prices negatively affect the users on the Ethereum network, others interpret it as a sign of increased activity, resulting in higher hashrate. According to Cointelegraph, the surge caused miner revenues to increase. Consequently, if miner revenues increase, it will lead to more miners wanting to mine Ethereum, and more miners will result in a further increase in hashrate that would make the Ethereum network more secure. The publication noted that this will continue as long as Ethereum remains utilizing the proof-of-work (PoW) mechanism.

ethereum-crypto-bitcoin-ripple-digital-currency-blockchain-getty_large Cryptocurrency Photo: Getty