Recently, the interaction between miners and the Ethereum network has reached a record high, but the increase in fuel usage may cause problems for the cryptocurrency network.

According to a recent report from Delphi Digital, the total amount of gas used on the Ethereum blockchain has reached the highest level in history, and it seems that this number will continue to grow. Fuel is a means of charging the Ethereum blockchain. Since the beginning of 2020, the total amount of fuel used on the network has been rising.





The total amount of fuel used is different from the transaction cost indicator in the Bitcoin blockchain. On the Ethereum network, transaction and smart contract fees are determined by the required fuel and fuel prices. This mechanism allows fees to change dynamically and to some extent separate from the price of Ethereum.


The amount of fuel used in a given transaction depends on the computational complexity of the transaction. On the other hand, the price of fuel is selected by the person who executes the transaction and is priced in Ether. The price is ultimately determined by the Ethereum miners, who accept or reject the transaction based on the fuel price.



USDT and decentralized exchanges dominate.

Although the fuel usage reached the highest level in history, the number of transactions on the Ethereum blockchain is far lower than the highest historical record of 1,349,890 transactions reached on January 4, 2018.

This means that the increase in total fuel usage comes from the use of more smart contracts. Because smart contracts are more complex, more fuel is needed.

According to data from ETH Gas Station, the usage is mainly from USDT, and the Ethereum fuel cost alone cost $1.61 million. It was followed by DeFi applications and some scams and Ponzi schemes. USDT also leads the average fuel price used, at 35.5 Gwei.

Following the USDT stablecoin, the decentralized exchange (DEX) seems to be in a leading position in terms of popularity. According to DappRadar data, IDEX is the most used dapp in terms of the number of transactions alone, and IDEX and Kyber are both in the top three on the Ethereum network.

A recent survey also showed that DeFi's highest awareness and utilization rate come from decentralized exchanges.

Higher transaction fees and fuel restrictions

The increase in Ethereum network usage has led to an increase in average transaction fees because miners prefer to handle transactions with higher fuel prices. According to data from glass node, at the time of writing, the average transaction fee has increased five-fold from $ 0.08 in January 2020 to $ 0.41. This also accounts for about 10% of miners' income.

The total fuel usage is limited by the block fuel limit set by the miners, which limits the size of the Ethereum blockchain by determining how many transactions are in a block. The amount of fuel used in each block has been steadily increasing, from 69% in January to the most recent 95%, and is also close to the current upper limit.

Considering the current increase in fuel usage on the network and related block fuel restrictions, due to various factors, Ethereum may face network congestion in the near future. If fuel usage rises to the upper limit, users will have to compete with higher fuel prices to execute transactions and smart contracts.

In addition, a sudden plunge in the price of Ethereum may lead to higher fees and network congestion. As seen during the plunge on March 12, according to a report by The Block, the average fee cost increased from $ 0.16 to $ 1.04.

In this highly volatile situation, traders may find network congestion very troublesome, because the leverage positions of DeFi platforms and centralized exchanges may be liquidated before they take action.

When the usage is close to the limit set by the miners, it may be necessary to increase the block fuel limit. The most recent increase was in September 2019. The block fuel limit was increased by 25%, from about 8 million to about 10 million.

However, this change will further increase the size of Ethereum's blockchain, which has reached nearly 140 GB. Therefore, there seems to be no simple solution, and Ethereum faces considerable challenges in terms of scalability.

According to JPMorgan Chase, Bitcoin effectively priced the daily energy consumption by 25%.

JPMorgan regards bitcoin as a commodity because bitcoin mining requires electricity. The company said that bitcoin miners responded quickly to a sharp decline in revenue after halving revenue.

Nikolaos Panigirtzoglou, the bank’s managing director, wrote that after halving the bitcoin network block reward to 6.25 bitcoins, people found that “the intrinsic value estimate actually doubled Something. "

In principle, if the market price of Bitcoin is higher than its intrinsic cost, it should cause miners to increase the resources for mining Bitcoin, thereby increasing the mining cost until the marginal cost is close to the market price.

On the contrary, if the price is lower than the intrinsic cost, the high-cost producer must withdraw from the market and reduce the total cost until it approaches the marginal cost again.

The intrinsic value of Bitcoin price

In order to find the intrinsic value of bitcoin, calculate the daily production cost of bitcoin as a function of computing power, electricity cost and hardware energy efficiency, and then divide by the expected daily output of bitcoin.

Since the halving, the hash rate has dropped by 20%. The last time this drop occurred was when the price of Bitcoin plummeted by 50%. This decline also occurred in the context of "improving the average efficiency of mining equipment, because energy consumption per GH / s has dropped by more than 15%."

As shown in the figure above, the chart from JPMorgan Chase shows the chart of the Bitcoin market price and intrinsic value chart, which uses Hayes (2018) 's production cost method to estimate the intrinsic value. , And the current situation narrows the gap between intrinsic value and market prices.

Background of futures market positioning

J.P. Morgan Strategic Analyst Nicolaus Panigirzoglu also mentioned the significant increase in the open interest of Bitcoin futures and options.

In terms of the Chicago Mercantile Exchange (CME) bitcoin futures contract, it is recovering faster than cryptocurrency exchanges, and the amount of bitcoin and cash has both increased "swiftly". Although CME's open position (OI) has surpassed LedgerX, it still lags far behind Deribit's nearly $ 1 billion OI.

As for bitcoin futures positions, JPMorgan Chase multiplied the absolute value of weekly holdings by the data of weekly futures price changes. The basic principle behind price increases is that the specifier ’s net long position and increase in investors and vice versa.

The above chart is a bitcoin position proxy chart based on Bitmex permanent swaps and open positions of CME bitcoin futures contracts.

This year, the trends of the Chicago Mercantile Exchange and BitMEX futures are similar in direction. "In the March sell-off, net longs were cut or net shorts increased significantly. Before the halving event, net longs or net shorts increased or decreased significantly.

However, the JPMorgan Chase report did not mention the decline in BitMEX's market share and network traffic by more than 40%.

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How are Ethereum options different from futures?


The gap between the two is very large.


For example, as the price of Ethereum was 9000 US dollars, Tom and Jerry predict that Ethereum was expected to continue to rise, so they bought Ethereum contract and bitcoin options, respectively.

• Tom choose to purchase a Bitcoin contract which cost $9000
  Jarry choose to buy a bitcoin option which costs about $5

As they wish, after Tom and Jarry placed the orders, the Ethereum price rose sharply, which less than an hour, from 9,000 US dollars to 9,500 US dollars.

By comparison, Tom and Jarry get the same benefits, but the cost gap is very large.

• Tom spent $9,000 and earned $ 500, which is a 5.5% return on the cost.
  Jarry spent $5 and earned $500, which is calculated as 10,000% of the income.

Conversely, if Ethereum fell from 9,000 US dollars to 8,500 US dollars in one hour, Tom will be lost 500 dollars, and Jarry only lost the option fee, which would be 5 dollars. Which is "Limited losses and Unlimited gains".

Ethereum 2.0, which is expected to be launched in 2020, marks the long-awaited upgrade of the Ethereum mainnet.

What is Ethereum

Similar to Bitcoin, Ethereum is a decentralized blockchain platform. Ethereum, known as the 2.0 era of blockchain, was once thought to be possible to surpass Bitcoin, and it can support many advanced functions, including users issuing currency, smart protocols, decentralized transactions and the establishment of decentralized autonomous organizations ( DAOs) or decentralized autonomous companies (DACs).

Ethereum does not specifically support every single type of function as a feature. Instead, Ethereum includes a built-in Turing-complete scripting language that allows you to write for the features you want to implement through a mechanism called "contract". Code. A contract is like an automated agent. Whenever a transaction is received, the contract runs a specific piece of code that can modify the data stored within the contract or send the transaction. Advanced contracts can even modify their own code.

How Ethereum works

Like other blockchains, Ethereum requires thousands of people to run software at the same time to drive the entire network. Every node in the network runs an Ethereum Virtual Machine (EVM). You can consider the EVM as an operating system for understanding and executing software written in a specific programming language of Ethereum. The software or applications executed by the Ethereum virtual machine are called "smart contracts".

To operate on this global computer, you need to pay. But it is not used to pay in conventional currencies such as US dollars and British pounds. Instead, the network's native cryptocurrency is used for payment, which is ether. Ethereum is almost identical to Bitcoin, except that the former can also be used to perform smart contract payments on Ethereum.

Both individuals and smart contracts are regarded as users of Ethereum. Smart contracts can do the same thing as human users. But unlike human users, smart contracts can also execute predefined computer programs to perform various operations.

How are Ethereum options different from futures?

The gap between the two is very large.
For example, as the price of Ethereum was 9000 US dollars, Tom and Jerry predict that Ethereum was expected to continue to rise, so they bought Ethereum contract and bitcoin options, respectively.

1. Tom choose to purchase a Bitcoin contract which cost $9000
2. Jarry choose to buy a bitcoin option which costs about $5

As they wish, after Tom and Jarry placed the orders, the Ethereum price rose sharply, which less than an hour, from 9,000 US dollars to 9,500 US dollars.

By comparison, Tom and Jarry get the same benefits, but the cost gap is very large.

1. Tom spent $9,000 and earned $ 500, which is a 5.5% return on the cost.
2. Jarry spent $5 and earned $500, which is calculated as 10,000% of the income.

Conversely, if Ethereum fell from 9,000 US dollars to 8,500 US dollars in one hour, Tom will be lost 500 dollars, and Jarry only lost the option fee, which would be 5 dollars. Which is "Limited losses and Unlimited gains".





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Bitcoin fell to a low of $ 3,700 in March, however, it recently has risen to $ 10,000, and the transaction price has only exceeded 5% of its historical record.

The rebound from the lows undoubtedly left a deep impression. As the world fell into recession, Bitcoin attracted the attention of mainstream media. Some analysts are very optimistic to point out in the next few years Bitcoin may break through the historical high of $ 20,000.

Can Bitcoin meet its price expectations after halving?

In the price plunge in mid-March, we can see the test of Bitcoin as a store of value. BTC is currently in an upward trend and has received strong support.

In the short term after halving, the price of Bitcoin is likely to start to approach the $ 12,000 area, especially as more and more countries begin to consider cryptocurrencies in their respective monetary policies and incorporate this novel asset class Treated as a legal financial instrument. Not only that, but more and more people are also beginning to see Bitcoin as an effective hedge against inflation, further consolidating the market's confidence in BTC.

However, it remains to be seen how Bitcoin's future price trends will be.

Although most people expect prices to fall after halving, the overall trend of prices is still gradually rising and may move towards the $10,000 mark. The halving is largely described by Bitcoin supporters as the supply/demand dilemma, but it is worth thinking that the halving of Bitcoin will not cause Bitcoin to become scarce in the supply of resources, but only reduces the entry of Bitcoin There is the number of supply pools. Many investors and supporters of traditional financial systems have begun to realize that this deflationary model makes Bitcoin stand out from the competition.

Talking about the impact of the recently ended halving on the public, GE Capital ’s former senior vice president Alan Silbert pointed out that from the practical aspect of Bitcoin as a truly independent financial commodity See, the halving event is to remind everyone at the supply of Bitcoin should follow the mathematically bound release schedule:

"This is one of the key principles that endow Bitcoin with value. This is even more verified in the context of unlimited trillions of dollars printed by the government." The halving event is a good reminder for investors The difference between traditional fiat currency markets.