While Bitcoin is regarded as the king of cryptocurrency, it doesn’t beat out Ethereum in every metric. With a robust ecosystem of decentralized finance (DeFi) protocols, play-to-earn blockchain games, and NFTs, Ethereum’s blockchain handles about 5 times the daily volume of Bitcoin.
As a metric of success, generating fees is a double-edged sword. For one, fees show the demand for a blockchain network. If the network were to have less active users, it’d generate less fees. There’s also something to be said that users are willing to spend sometimes north of $100 to interact with a network’s decentralized applications.
However, high fees are also a sign of scalability issues within a blockchain’s network. As Ethereum gains more adoption, investors are priced out of interacting with its blockchain due to high transaction costs. Ethereum plans to migrate to proof of stake consensus in 2022 which should reduce the cost of transactions significantly, but until then investors must rely on layer 2 solutions like Polygon (MATIC) and Optimism to reduce transaction costs.
Litecoin processes transactions in a quarter of the time of Bitcoin. This leads to better scalability and lower fees than its counterpart. With 150,000 transactions and just $2,700 of fees, it’s extremely cheap to use its network. However, Litecoin also facilitates the least amount of transactions per day out of these 3 cryptocurrencies –– and as transactions increase so will the cost per transaction.
On an average day, Bitcoin will generate around $750,000 in fees. In comparison, Ethereum will generate around $44,000,000. It’s expected that Bitcoin won’t facilitate as many transactions as Ethereum; Bitcoin’s current primary use case is to store value, whereas Ethereum acts as a platform for other blockchain use cases to be built upon.
Ethereum is a general purpose blockchain that can settle contract execution and payments online without a central intermediary. Ether, the native token on Ethereum’s blockchain, is spent by DeFi users to interact with on-chain protocols like Uniswap. These applications can earn investors passive income, so users are willing to pay high transaction costs in order to interact with them.