A cryptocurrency bull run often gets speculators and novices excited as it gives them an opportunity to make big gains in a very short space of time. However, it turns out that such a bull run is a double-edged sword.
As bitcoin users have discovered in the past few months, a bull run is associated with high network fees and clogging of the network. In other words, when demand for bitcoin soars as a result of inflation fears and other factors, the cost of transacting shoots up.
In the past few months, those charged with verifying transactions on the bitcoin network have hiked fees for their services. It currently costs $5 or more to do a normal transaction and even higher if this has to be done quickly. For perspective, it cost less than $0.40 to do a transaction on the Bitcoin Network in April 2020.
So instead of being an alternative in times when it is needed most, the digital currency is turning out to be expensive just like fiat-based systems. As those seeking cheaper and faster platforms for sending remittances will attest, bitcoin is hardly an alternative as it stands. The same goes for businesses that wish to make cross border payments.
Unfortunately, the high fee predicament appears to be the case for Ethereum, the blockchain that has been built to support many applications, including smart contracts.
The Ethereum blockchain, which is the second-largest network in market capitalisation terms, has suffered from the challenge of high network fees. The network’s “gas fees” are usually a minuscule of a per cent but these recently surpassed that of the Bitcoin network.
Whats does this mean?
To begin with, it means every decentralised application (Dapps) running on the network is suddenly faced costs that have an impact on business viability. Creators of the decentralised applications are forced to weigh the option of passing on the increased costs to clients or absorb them.
Both options are bad choices because the whole idea of the blockchain was to create a decentralised platform that scales but will minimal fees. Many Dapps ideas and concepts are premised on this understanding.
Sadly, the bull run, which is fueled by other factors such as fears of fiat currency debasement, seems to be upending the very notion that the Ethereum makes improbable ideas very possible.
Indeed, the developers at Ethereum seem to be acknowledging this unfortunate situation and are trying to remedy this by making some changes. For instance, the network is proposing to switch to the proof of stake (PoS) consensus mechanism but that process has been very slow.
Until recently, Ethereum had a virtual monopoly status and organisations running applications on the network had no other better option. Of course, there have been a few solutions from the likes of Hyperledger or R3 Corda but these fall short as they do not meet the decentralization needs of Dapps creators.
This situation has and is a call to action for entrepreneurs to create alternatives to Ethereum that overcome some of the challenges explained above.For instance, one tech organisation responding to this call is Algorand. Built to support smart contracts, the Algorand blockchain has demonstrated over the past twelve months that it offers a better option.
With 1000 transaction per second, Algorand blockchain easily beats the Ethereum and Bitcoin networks when it comes to scaling. With this capacity, it means a high usage of the blockchain is less likely to have an effect on performance. In fact, it appears that is what has been happening, the fee on all Algorand transactions has remained static (less than $0.0001) and block finality is assured, no clogging.
Indeed, some start-ups have made the switch to the Algorand blockchain but others might be hesitant to make the change. The reluctance stems from the fact that it can be challenging to get users set up in the new blockchain with as little friction as possible being passed to them during the transition.
Other blockchains also face a similar challenge when they make breakthroughs that would ordinarily get users dumping alternatives. In other words, Dapps creators do not have the luxury of easily switching between blockchains. Now in recognition of this possible challenge, the developers at Algorand have added a new feature–rekeying. The rekeying feature helps organisations to easily deal with the mentioned above challenge.
Rekeying allows organizations to create and set-up accounts for their users ahead of time and trustlessly reassign them when needed. The list of custody organisations that can benefit from this new feature include banks, exchanges, savings associations and registered broker-dealers.
Algorand’s rekeying feature enables these organisations to keep their user’s spending keys cold at all times while only needing to manage one public address key.
Rekeying also enables the standardized key rotation schedules depending on security posture. For instance, a company can institute a monthly key rotation if desired. Another important use case of this rekeying feature involves any high-security scenario in which the spending key must be kept cold, but a transaction is needed from the account.
This addition to the Algorand blockchain underlines the importance of responding to users’ needs early. This approach appears to be working as evidenced by the number of projects that are opting for this blockchain.
Indeed, high network fees and slow confirmation times are hurting the allure of the blockchain when this technology is supposed to be the saviour. Still, there are other factors that dilute the effectiveness of blockchains and it is the job of developers to deal with these.
Granted, it is a challenge to have a perfect innovation but foisting a flawed technology onto the market will kill it before it is even goes mainstream. It is time developers of pioneering blockchains realize that they do not have the power anymore.
In the end, it is the tech start-ups and developers that respond to the needs of users that will win the race to have the best blockchains.