Rising congestion on the Ethereum blockchain has driven up transaction fees tenfold this year to the highest since early 2018.

Thats pressuring the networks developers to speed up crucial upgrades, while possibly creating an opening for competitors to lure away project developers.

Its a lucky problem to have, since the congestion shows just how popular Ethereum has become as an ecosystem within the cryptocurrency realm.

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The ether tokensmarket capitalization, at roughly $27 billion, is just one-sixth of the older and larger bitcoins.Yet,Ethereum dominatessome of the fastest-growing parts of the industry, including dollar-linkedstablecoins like tether (USDT) and theautomatic lending systemsof decentralized finance, orDeFi.

Now, however,the elevatedtransaction feesare raising concerns among some cryptocurrency analysts and investors who fret that Ethereum developers could be months or even years away from a fix, with no clear end in sightto the surging traffic.

A handfulof alternative networks aiming to beEthereum killershave emerged over the years. Nonehave achieved that aim so far, but prohibitively high fees couldpresent anopportunityforEthereums more scalablerivals.

Its good because people want to use Ethereum, but the counter-signal is that it cant necessarily handle all this usage, and therein lies the opportunity to provide an alternative, Ryan Watkins, a research analyst at the cryptocurrency data firmMessari, said in a phone interview.

The episode underscores a nagging question for the entire industry whether cryptocurrencies are ready for mass adoption by consumers or investors.

The network continues to suffer from some scaling issues, which are becoming more problematic as it grows, says Rich Rosenblum, a former managing director of the Wall Street firm Goldman Sachs who now leads the markets group at the cryptocurrency firm GSR.

Under the rules of the Ethereum network, users can offer to pay a higher fee rate to get their transactions processed faster. So when theres lots of activity, the fee rates canquickly spiral upward.

According to Coin Metrics, the average cost per transaction has climbed to a 7-day average of about 91 cents, from about 8 cents at the start of 2020.

Ethereums fees are calculated using a base unit called gas, and are charged for any useof the network for activities such assmart contract execution.

As of now, high gas fees are keeping smaller players from being able to participate in some of DeFis most interesting protocols, such as Synthetix, said Digital Assets Datas Connor Abendschein.

Ethereums dilemma would be easily recognizedby evena B-rate CEOfrom the old-worldeconomy: High prices invite competition; its great to own the golden goose just dont kill the golden goose.

As noted by the websiteEth Gas Station, which tracks fees on the network, The long-term success of Ethereum depends on ahealthy and efficient market for the price of gas.

Ethereumco-founderVitalik Buterin sounded his own warning on Monday when henoted in a tweetthat transaction fees now represent nearly half of the rewards that cryptocurrency miners get from confirming new data blocks on the network.

This actually risks making Ethereum *less* secure, he tweeted. Fee market reform fixes this.

The problem, according to some analysts and investors, is that a fix isnt likely until later this year or well into 2021, and is just one of many upgrades. Theresno clear consensus on how to reform the fees, and the network isalready drivingtoward amajor overhaul known as Ethereum 2.0that already has been pushed back several times.

According to a Coin Metrics report last week, the high fees could make the network prohibitively expensive for applications like gaming and collectibles that depend on large numbers of low-cost transactions.

The reason Ethereum has been so successful for distributed applications is its low cost, Gavin Smith, CEO of the cryptocurrency hedge fund Panxora, said Monday in a phone interview. The whole idea was that each transaction is a microtransaction. If yourepaying a large fee every time, its no longer practical.

Prices for ether,the native token of the Ethereum network, have risen 105% thisyear, a performance that dwarfs bitcoins 32% climb.

Ethersperformance in digital-asset marketsreflects tradersbets that the Ethereumblockchain will continue to see high usage. But from the perspective of users, the tokens higherdollar price just makes thefees look that much more expensive.

Ethereums scaling solutions couldnt come any sooner,Messaris Watkins said.

Tweet of the day

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First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains - CoinDesk - CoinDesk