A turbulent May is over, and neither Bitcoin (BTC) nor Ether (ETH) has recovered its losses from its highs. While Bitcoin’s Chinese miners are still anxiously awaiting a regulatory policy to clear out mining sites, ethereum miners who mine with graphics cards have seen a ‘pay rise’.
TheBlock data revealed that the total revenue of the ethereum miner community hit a new record in May, reaching $2.35 billion, of which, on-chain transactions contributed $1.03 billion in fee revenue for miners, accounting for 43.8% of the total revenue.
Looking at historical statistics, miners’ on-chain transaction fee revenue has increased significantly since last August, surpassing block reward revenue at one point in February of this year. The increase in transaction fees is strongly correlated with the trend of expanding the size of the DeFi ecosystem on EtherChip.
Despite the ETH price slashing market in May, miners’ ETH revenue is increasing instead. In particular, on the day of the May 19 crash, ETH fell 26% daily, while ETH mining rewards and fees for miners across the network reached 74,502 ETH, the highest record in the month. On that day, the asset market was highly volatile, and the hedging behavior of on-chain DeFi users was frequent, contributing to a large amount of network fees.
In the recent year, the network fee income brought by Ether to miners gradually converged to the mining reward income, and for two months, the fee surpassed the mining reward in reverse. Making fees one of the ways to capture the value of ETH is exactly the title of Ether’s transformation direction.
5-19 plunge day, ethereum miners made a lot of money
On June 1, Coinan showed that ETH closed at $2,551, down 41% from its all-time high of $4,372 on May 12, and also failed to regain the lost ground of $3,000 at the end of May.
Despite the price volatility, Ether miners, who maintain the safe operation of the chain, were not harmed by the market turmoil; instead, miners’ revenue hit an all-time high of $2.35 billion in May, a 42 percent increase from the previous month’s record.
The Block data shows that of the total revenue of the $2.35 billion miner community, block reward revenue amounted to $1.32 billion and on-chain transaction fee revenue was $1.03 billion, both of which were record highs, with the latter revenue having accounted for 43.83% of total revenue.
Miners’ revenue growth accelerates after June last year
Other indicators that set records along with miners’ income are Ether’s on-chain transactions and the number of active addresses. Data show that in May, the number of ETH on-chain transactions reached more than 45 million, up 7% from the previous month and 69% from May last year; the number of active addresses on the network was more than 20 million, up 14.6% from the previous month and more than double that of the same month last year.
Ether’s record multiple indicators in May are related to both the price of ETH climbing to a record high in that month and the sudden crash that came later, especially the on-chain transaction fee part of miners’ income, which stood at the high point of miners’ daily income on the day of ETH’s high price on May 12 and the day of the crash on May 19.
TokenView data shows that on May 12, the average value of single transaction fees on the chain was $69.38, and the total fees for that day exceeded $112 million, with the entire network contributing more than 26,900 ETH in on-chain transaction fees; while on the crash day of May 19, the average value of fees for single transactions was at $71.77, with more than 30,000 ETH on the chain worth more than $100 million going into the miners’ pockets.
In comparison, ETH’s mining rewards at the very high price in May were higher in dollar terms than the crash price on the 19th, but if the mining rewards were settled in ETH, the burst block rewards at the time of the crash were 43,685 ETH, higher than the 39,829 ETH when the coin topped out.
Whether the price of ETH is high or falling, the on-chain transaction fee, a part of miners’ income, will be guaranteed, which is undoubtedly related to the development of DeFi ecology on the Ethernet network. The higher the demand for network resources from applications and users, the more congested the network will be, and the more significant the on-chain transaction fee will be contributed.
The extreme market on May 19 is a kind of extreme embodiment, on that day, several lending agreements on the ETH chain faced liquidation, the user’s action of concentrated loan repayment will increase the network usage, and when the liquidation occurs, the application will also call network resources with high frequency. At the same time, the number of transactions on the ETH chain increased sharply, and the network became congested. Nearly 20,000 transactions were pending to be confirmed and processed by miners that day, and the Gas fee in extreme mode once exceeded 2,000 GWEI.
It is not surprising that the chain’s transaction fees reached the extreme value of the month on May 19. It is no wonder that some investors commented that, leaving aside the regulatory level, ethereum mining is a deterministic and high-return investment, “when the price rises, miners earn more; when the price falls, especially when it plummets, DeFi clearing can keep contributing revenue.
Transaction fee revenue growth exceeds mining rewards
From TheBlock’s data, it is not difficult to find that the miners’ income of Ether has increased significantly since last June, in which the on-chain transaction fee income has shown a significant increase compared to 2 years ago.
The increase in transaction fee revenue has only occurred in the past in December 2017 and January 2018, as everyone in the cryptocurrency world knows, when it was the period when ICO coin offerings appeared on a large scale on the ETH chain.
Until June last year, Ether ushered in a new use case, the liquidity mining promoted by the lending protocol Compound, triggered the DeFi market, decentralized exchange DEX, lending-type applications exploded, insurance, algorithmic stable coins and other protocols took turns to become a later stage of the popular scene, the pursuit of Farm high yield users flocked to the network with their capital, the use of the network is getting higher and higher, the ace DEX Uniswap airdrop governance token UNI when it has been blocking the network, the average transaction fee was pushed up to 10ETH in the extreme.
The total ETH on-chain transaction fees have also been rising precisely along with the boom in these applications, which has also happened to put the DeFi market through a 12-month annual cycle since June last year. Hive Finance combed and found that the structure of Ether miners’ income has changed significantly in this year, and the transaction fee income is converging to the block reward income from mining, and even surpassed the block reward income in September last year and February this year.
In June 2020, of miners’ total revenue of $110 million, mining rewards were $90 million and on-chain transaction fee revenue was $20 million, accounting for just 18.19% of total revenue. By May of this year, of the miner’s $2.35 billion in revenue, mining rewards accounted for 56.17% of total revenue and transaction fee revenue had reached 43.83%.
In a year’s time, the overall percentage of mining reward revenue of miners showed a gradual decline, while the percentage of transaction fee revenue rose and increased more. In the last 6 months, the total mining reward income has increased 403% compared with the previous 6 months; the total amount of transaction fee income in the first 6 months was $450 million, and after the next 6 months, the total amount of this income has increased to $3.56 billion, with a half-year increase in 691%.
Such an increase is a clear indication of the importance of the on-chain eco-activity to miners’ income. However, the high on-chain fees have fattened up the Ether miners, but it is not a healthy situation for the users of the network. The cost of usage due to congestion and high fees eventually comes out of the “sheep”, which includes both DeFi users and on-chain applications.
The fee structure is one of the reasons why EtherChannel implemented the EIP-1559 proposal in the July London upgrade.
The proposal directly addresses network transaction fees by designing a pricing mechanism that divides the fee structure into a base fee and a tip fee. Among them, miners will not receive the base fee, which will be destroyed; the tips from users’ priced bounties belong to miners.
Such a design undoubtedly reduces the miner’s network fee income. However, at the same time, EIP-1559 stipulates that when the capacity of each block exceeds the target Gas usage, the base fee will increase in the following blocks; and vice versa, it will decrease. This lets the Gas fee adjust according to the demand of the network. For users, choosing the bounty fee based on network conditions is certainly more flexible than the current high and unpredictable transaction fees.
EIP-1559 adjusts the fee structure of the network, and the destructive deflation facilitates the value capture of ETH, but it is also seen that the total capacity of the network and the time out of the block will not change, which means that the problem of network congestion and inefficiency cannot be cured.
Moving from PoW to PoS for Ether 2.0 is either the ultimate solution, but it will still take a long time to really get off the ground. The good thing is that a series of Layer2 transition solutions are on the rise. For Ethernet miners, fee income will be more permanent than graphics card mining rewards. After all, the PoW mechanism of the Ethernet chain will inevitably disappear in the future, even if it is not stopped at the end of this year.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/black-may-eth-slumps-while-ethereum-miners-raise-pay/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.