As token offerings have taken Ethereum by storm, the network has encountered a spike in transactions. On Tuesday, June 20, Status, an open-source messaging platform and mobile browser, launched the Status Network Token (SNT). As reported by ETHNews, the company raised approximately $90 million.
In light of the token offering mania, companies are trying to figure out how to prevent “race conditions.” Essentially, the moment a company launches its token, there is a mad scramble by investors who desperately try to pour their money into the new asset. Token offerings have become Ethereum’s version of Black Friday, except there’s a new opportunity virtually every week! The next major token offering is set for this upcoming Saturday, June 24, when TenX, a crypto-based debit and mobile wallet company, plans to launch.
The “digital gold rush” has resulted in a significant backlog on the Ethereum network. The current block size, mining power, gas structure, and node network can only handle so many transactions before bottlenecking becomes a major issue.
Unfortunately, the Ethereum backlog is augmented by users who send payments multiple times in their haste to invest. Sometimes, they buy too soon – and their transactions are rejected. The amplified transaction volume is still processed by miners, even for disallowed payments. Other times, the token offering sells out immediately (as was the case with Brave Browser’s BAT) and the majority is left on the sidelines. Meanwhile, a few users make exorbitant gas payments to claim a place at the front of the line. Even in this scenario, all the transactions must go through the motions. Often, gas expenditures are wasted, resulting in a “sub-optimal” outcome.
Many factors influence “throughput,” or how many transactions Ethereum can process per second. According to Taylor Monahan, CEO of MyEtherWallet, one of the major obstacles to the network is the high gas limit imposed by mining pools like F2Pool and DwarfPool. If pools set gas too high, then transactions are not processed. At present, a new block is mined once every 17.42 seconds per EthStats.
Perhaps the most pressing issue is node overload. As of publication, there are approximately 35,700 Ethereum nodes operating worldwide, according to EtherNodes.
When a small cluster of nodes is tasked with processing thousands of transactions, it’s impossible to keep up with demand. Cryptocurrency enthusiasts can circumvent this issue by installing nodes themselves. Options include Parity and Geth.
When Civic, an identity verification company, made its token offering on June 21, the Ethereum network and its accompanying global financial infrastructure were tested yet again. In fact, delays and trading suspensions were announced by several major exchanges, including Coinbase, Gemini, Bitfinex, and ShapeShift.
On its website, Coinbase displayed the following message:
Gemini posted a similar notice to customers:
Meanwhile, Bitfinex and Shapeshift tweeted news of trading suspensions.
We are suspending all ETH withdrawal until the network backlog subsides and we are able to reliably post transactions to blockchain.— Bitfinex.com (@bitfinex) June 21, 2017
NOTE: We are taking down Ether/ERC-20 tokens as the Ethereum network continues to experience extreme delays. Stay tuned for updates— ShapeShift.io (@ShapeShift_io) June 21, 2017
In addition, delays were reported by Jaxx.
Delays to expected when ShapeShifting from the Jaxx app due to the Ethereum network backlog. Stay tuned for updates. https://t.co/nzvRIKU1Au— Jaxx (@jaxx_io) June 21, 2017
MyEtherWallet also expressed its exasperation, but provided the sanest response in the midst of the madness.
Install geth, Parity, or Mist if you are serious about getting into a token sale.— MyEtherWallet.com (@myetherwallet) June 21, 2017
Growing pains are expected. The token offering model is imperfect and the network’s financial framework is still in its infancy. While Ether plummeted, these contractions should help inform developers about shortcomings in the ecosystem and increase the crypto community’s awareness about the importance of scalability.
Relying on a small subset of nodes to process transactions amounts to re-centralization, defeating the ethos of the network. Instead, by setting up one’s own node, blockchain and cryptocurrency users can aid Ethereum’s development and pave the way for widespread adoption.