Latest data provided by Etherscan and glassnode indicates that Ethereum’s hashrate has reached a 20-month high and this has encourages some bullish traders to forecast continuation of rally in Ether.
The sharp rise in Ethereum’s hash rate, which was hovering around 201,000,000 GH/s at the time of writing this article, seems to have been sparked by fast growth of Decentralized Finance (DeFi) sector. Such a high hash rate was previously seen in 2018.
Of late, demand for Ether has risen considerably and since mid-June, a rising number of users began to use DeFi platforms, causing congestion of the Ethereum network.
Subsequently, transaction costs have begun to increase on sudden surge in transactions and intensified actions on DeFi platforms and Uniswap.
The sharp rise in hash rate, fees and Ether price indicates that the client activity on the Ethereum blockchain continues to rise.
Even though the Ethereum rally was sparked by DeFi (decentralized finance) ventures, the data indicates that fundamentals of Ethereum blockchain have improved.
The hashrate of Ethereum blockchain network has been rising because of increasing miner revenues generating in the form of fees for transaction validation.
During periods of network congestion, in general, users supersede others by paying a bit higher fees than the rest to get the transaction confirmed quickly.
On-chain transaction fees on #Ethereum continue to outpace #Bitcoin.
The gap is now up to $1 million a day. pic.twitter.com/MTyjVYT4b8
— Cryptowatch (@cryptowat_ch) August 12, 2020
This creates a vicious cycle of continuous rise in fees, encouraging miners to put more effort, leading to an increase in hashrate.
Academics at Glassnode detailed that miner revenue generated in the form of Ethereum transaction validation fees have increased by 18%. They further explained as follows:
1/ Miner revenue from fees on #Ethereum has skyrocketed in the past two months, reaching an all-time high of around 18% (30d moving average).
Conversely, this has brought the Fee Ratio Multiple (FRM) to lows never seen before on Ethereum.
Chart: https://t.co/bRe2Ce3f0A pic.twitter.com/FkNQPLqAOx
— glassnode (@glassnode) July 3, 2020
In the past few weeks, the enthusiasm surrounding Uniswap and fresh DeFi covenants, for example Yam Finance, has driven charges on Ethereum blockchain to exceed that of Bitcoin transaction confirmation charges. Ctyptowat.ch, a crypto market data provider owned and managed by Kraken cryptocurrency exchange stated:
“On-chain transaction fees on Ethereum continue to outpace Bitcoin. The gap is now up to $1 million a day.”
Some cynics may rightly debate that bigger fee on the Ethereum network discourages users and makes user experience complex.
Another alternative explanation points out that increasing fee indicate that user activities on the network is rising and the hashrate is also getting a boost.
These are salubrious indications as during the crypto winter in 2018 several crypto investors turned cynical about the dearth of users on the Ethereum based dapps.
Furthermore, until Ethereum stays as a PoW (Proof-of-Work) blockchain network, the hashrate works as a crucial metric for blockchain safety.
