Blockchain technology has taken the financial world by storm, with cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) at the forefront. However, the rapid surge in popularity and usage of these digital currencies has led to some significant consequences on their associated transaction costs.
In early May, Bitcoin transaction fees experienced a dramatic upswing, reaching a two-year high, with data from CryptoFees showing that fees paid on the Bitcoin blockchain amounted to $3.5 million on May 3. This was a 400% increase from late April, with the average Bitcoin transaction fee reaching $7.2. The driving force behind this increase can be attributed to the trading frenzy of memecoins like Pepe Coin (PEPE), leading to an influx of BRC-20 transactions on the Bitcoin blockchain.
The BRC-20 token standard, introduced in March 2023 by an anonymous on-chain analyst known as Domo, allows users to issue and transfer fungible tokens on the Bitcoin blockchain, similar to Ethereum’s ERC-20 token standard. Since its inception, BRC-20 has become a significant trend within the cryptocurrency industry. Its swift rise to prominence can be linked to the astonishing growth of the PEPE memecoin, which soared more than 600% in value over just seven days, achieving an all-time high on May 5.
However, the Bitcoin blockchain is not the only network grappling with the aftermath of the memecoin hype. Ethereum, too, has seen its gas fees soaring to unprecedented multi-month highs. On May 2, the fees for ETH transactions reached over $19 million, a level not seen since May 2022. This has firmly cemented Ethereum’s position as the most expensive blockchain network regarding transaction fees.
While the recent increase in Bitcoin transaction costs has been noteworthy, it has not come close to the all-time highs experienced in the past. April 2021 holds the record for the highest ever average BTC transaction fee, a staggering $70, which coincided with a significant drop in the Bitcoin network hash rate. The previous highest fee peak occurred in 2017, with transaction costs surpassing $60.
Although blockchain technology and cryptocurrencies continue to revolutionize the financial industry, there are notable drawbacks that come into play when usage surges occur. The exponential rise in transaction fees for both Bitcoin and Ethereum reflects the strain on their networks as new trends, like memecoins, emerge. As the world continues to embrace the potential of cryptocurrencies, it will be necessary to find ways to mitigate these negative consequences, ensuring the sustained growth and success of the digital currency realm.