The cryptocurrency world continues to experience high volatility and structural changes. Between the increase in on-chain liquidations and the decrease in miner revenues, the industry is going through economic challenges that could affect its future. On the other hand, innovative solutions such as Coinbase’s Layer 2 network, Base, show that there are still ample opportunities for growth. Let us analyse these dynamics in detail.
On 13 September 2024, the daily revenues of Bitcoin miners amounted to $25.35 million, but only $398,860 came from transaction fees, representing a mere 1.6% of the total. This figure is indicative of an increasing dependence of miners on block subsidy, i.e. the subsidy for the creation of new blocks.
In the past, transaction fees accounted for up to 40 per cent of miners’ total revenues, but with the recent reduction in blocks as a result of Bitcoin’s halving, this percentage has drastically decreased. The reduction of the block premium to 3.125 BTC has led to a decline in earnings for miners, highlighting the future importance of fees in maintaining network security.
Although there is debate about increasing block sizes to accommodate more transactions, many experts see layer-2s, such as the Lightning Network, as the solution to revitalising on-chain activity and ensuring the sustainability of mining.
While Bitcoin faces difficulties, Coinbase establishes itself as a leader in the layer-2 landscape with Base, a scalability solution built on Ethereum. On 13 September 2024, Base recorded a record of more than 4.5 million daily transactions, cementing its position as a leader among Layer 2 networks.
Coinbase recently launched cbBTC, an ERC-20 token pegged 1:1 to Bitcoin, available on both Ethereum and Base. This new product has not only fuelled activity on Base, but also opened up new opportunities for Bitcoin holders, who can now use cbBTC in DeFi protocols to provide liquidity or as collateral for loans.
Ethereum, the second largest cryptocurrency by market capitalisation, is having a particularly difficult time. On 12 September 2024, daily revenue for Ethereum stakers fell to $5.44 million, the lowest level in six months. This drop reflects a reduction in activity on the network, resulting in lower transaction fees.
Stakers on Ethereum receive revenue based on the amount of ETH deposited as collateral to validate transactions. However, the drop in daily transactions, which fell to 1.15 million on 13 September, reduced stakers’ earnings. Despite this, Ethereum remains one of the most widely used networks, and many see the upcoming network upgrades as an opportunity to revive its growth.
While Bitcoin and Ethereum battle it out in terms of fees, Non-Fungible Tokens (NFTs) continue to provide surprises. In early September 2024, sales of Cryptokitties surged 800%, with over 1,090 sales in a single week. This increase was likely fuelled by the launch of Eggs, a sub-project of Cryptokitties that generated great interest among collectors.
Although the utility of these Eggs is not yet entirely clear, clues suggest that they could be linked to a new Telegram-based game. Cryptokitties, which was launched in 2017, is one of the longest-running and most popular NFT projects, and the recent resurgence shows that the appeal of NFTs has not yet worn off.
And then there’s Avalanche: a blockchain that once seemed destined to revolutionise the industry is now facing a not-so-easy crisis this time around. The number of active addresses on the C-Chain network has plummeted to 31,000, a low not seen since October 2023. Although the network still processes around 150,000 transactions daily, the decrease in active users raises concerns about the long-term sustainability of the platform.
The decline in activity could be attributed to a combination of factors, including competition from other Layer 1 and Layer 2 solutions and a cooling of speculative interest. Avalanche’s future will depend heavily on its ability to attract new users through real use cases and practical applications that go beyond mere speculation. This seems to be the most important challenge for now.
