While the digital currency industry does not seem to be as bustling with activity as it was during the December 2017 craze, it’s innately difficult to tell how popular digital currencies like Bitcoin and Ethereum are at any given point in time. One potential indicator of a digital currency’s popularity is its daily transactions, although even this metric is not definitive.

Ethereum – the digital currency and platform famous for being Bitcoin’s ‘second-in-command’ in terms of popularity, has long since carried out more daily transactions than Bitcoin. However, looking at Ethereum’s daily transactions chart seems to reflect an overall trend in the market. Ethereum now performs nearly half the amount of daily transactions that it did in January 2018.

Ethereum daily transactions broke records in a time of chaos

When Ethereum daily transactions broke one million transactions in a single 24-hour period, the news was monumental. Coinsquare News reported this finding on December 19, 2017, making Ethereum the first ever digital currency to handle such a high volume of transactions.

Ethereum’s growth didn’t stop there, as in the following month Ethereum’s transactions reached over 1.3 million in a single day, according to BitInfoCharts. Further, Ethereum processed more transactions than all other digital currencies combined at the time.

The news was especially pertinent at a time when Ethereum and Bitcoin communities were forced to discuss issues created as a result of increased public adoption. These issues involve scaling, as blockchain limitations cause higher transaction fees and slower transaction times when more people begin to adopt most digital currencies.

Scaling remain a major issue for digital currencies which aim to become feasible options for day-to-day payments. In recent months, developments have been made to both the Lightning Network, and Ethereum Plasma, two scaling solutions which aim to future-proof their respective currencies.

Daily transaction volumes down across the board

While Ethereum observed a significant dip in its daily transaction volumes – hovering around 630,000~ as of April 5th, 2018 – the digital currency isn’t alone in this trend. In fact, almost every major digital currency experienced a dip in daily transactions since January.

Even with fewer daily transactions, though, Ethereum still processes more daily transactions than Bitcoin, despite Bitcoin being the world’s most popular and highly-valued digital currency. Bitcoin processed around 200,000 transactions on April 5th, down from its previous high of nearly 500,000 transactions on December 15th, 2017.

Even with the dip, Ethereum processed more transactions than Bitcoin’s record, suggesting that interest in the platform is far from being in dire straits. However, this dip highlights important factors that are potentially slowing down trade on Ethereum and similar platforms.

Investors less likely to spend during price dips

Understandably, with the market down from its highest valuation in December of last year, proponents may be less-than-excited about the prospect of spending their digital currency. It is easy to imagine that a sizeable part of the community is instead waiting for the value of held digital currencies to recoup before they proceed to trade.

Further, scaling limitations may prevent digital currency proponents from spending at the current point in time. However, both Ethereum and Bitcoin have shown improvement with handling transactions at lower costs, albeit this could be partially due to lower transaction volumes.

Challenges to daily transactions as a metric

It is innately difficult to contextualize the popularity of digital currencies. After all, there is generally no requirement for someone to identify themselves online. This means that it is difficult to determine the number of individual digital currency holders.

For this reason, transaction volume is a metric that both both digital currency proponents and critics use to contextualize the landscape’s popularity. However, there are several factors that should be considered when using daily transactions as indicator, such as batching and circumstantial spending.

Many digital currency exchanges now employ batching, a method of grouping transactions together. This could play a role in the lower number of daily transactions, although Bitcoin’s daily outputs is significantly lower as well. It is difficult to determine the role that batching, and SegWit adoption, play in lowering Bitcoin’s daily transactions.

For Ethereum, several other limitations to daily transactions as a metric appear. Ethereum serves as more than just a digital currency, allowing Decentralized Apps (dApps) to be built on top of its platform. With CryptoKitties and similar games reaching popularity heights last year, this could skew daily transaction metrics as not all Ethereum transactions are used for purposes indicative of mainstream adoption.

Supplementary evidence and the industry’s future

While there are many limitations to daily transactions as a metric, similar indicators seem to support the idea that there is a decreased activity in digital currency spending.

One example is search interest, as data sourced from Google Trends shows that Ethereum’s search interest over time decreased alongside its drop in daily transactions.

Ethereum's search volume drop correlates with a drop in ethereum daily transactions

Regardless of limitations to daily transactions as a metric, it seems that proponents are not as eager to trade digital currencies as they were towards the end of last year. However, advocates expect this to change if currencies recoup their December 2017 values, or overcome the current scaling limitations that are inhibiting the industry’s growth.


Image credit: Ethereum logo


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