Network congestion amid NFT craze
The Ethereum network is hit by another congestion, mainly caused by the ongoing non-fungible token craze with an average transaction fee climbing over $50. At press time, NFT marketplace OpenSea dominates the industry, breaking record after record in trading volume and gas spent by the users.
New minimalistic project Loot quickly became the most traded NFT collection, bypassing Bored Ape Yacht Club, and well-established CryptoPunks. Loot saw 200x floor price increase within a week, reaching nearly 20 ETH mark before the following crash. Amid Loot hype, completely unrelated LOOT token experienced 5x increase in price on Uniswap.
While many DeFi users and NFT traders struggle to cope with high on-chain transaction fees, the situation is slightly different this time because each severe network congestion now reduces selling pressure on ETH by shrinking its monetary supply, which benefits long-term Ether investors.
On that note, Ethereum had its first deflationary day following recently implemented EIP-1559, which changed the protocol rules in such a way that a big portion of transaction fees - called ‘base fee’ - is being burned instead of being given to miners as a reward for finding new blocks and securing the network.
Apart from congestion, the Ethereum network experienced a short-lived chain split that occurred due to a consensus bug in Ethereum’s popular Geth client, which is used to run the nodes that verify all transactions. While two chains were processed simultaneously, users were advised not to make any transactions to avoid potential issues such as a double-spend attack.
Bitcoin, El Salvador, and polemic
Despite the backlash from the World Bank, International Monetary Fund, and some local groups, El Salvador has officially adopted Bitcoin as a legal currency, purchased bitcoins for the government fund, and air-dropped bitcoins to its citizens who installed the state-developed Chivo wallet.
While many crypto investors cheer El Salvador’s bold move, recent polls among locals show quite negative sentiment about the new law. Many Salvadorians have little trust in Bitcoin and think that its usage should be voluntary. El Salvador’s President had previously clarified that merchants will have a choice to settle bitcoin payments in USD via the government Chivo app. However, Chivo requires KYC, so it’s unclear how merchants can choose to settle crypto payments in USD if they don’t want to participate in financial surveillance by installing the government app.
Since Bitcoin became legal tender, all businesses across the country are now obliged to accept bitcoin payments or they will risk sanctions under the country’s Consumer Protection Law. The new bill pushed not only small local businesses, but also big international corporations such as McDonald’s to adopt bitcoin payments.
It’s important to understand that, for real adoption as a currency, Bitcoin should be exempt from the capital gains tax like in El Salvador — otherwise citizens will have to calculate how much they must pay in taxes after each purchase, which makes paying with Bitcoin impractical.
In other news
After the core developers of Ruler and Cover protocols have suddenly left these two DeFi projects, the remaining team decided to close the shop and distribute treasury funds among all token holders. Cover Protocol was launched in September 2020 with the goal to provide investors with peer-to-peer insurance that would cover losses in case if DeFi protocols they’ve invested in got hacked or exploited.
The Wall Street Journal reported that the US SEC is investigating Uniswap Labs, the company that develops world’s largest decentralized exchange by trading volume Uniswap. Even though regulators can potentially fine or jail developers as well as seize the Uniswap.org domain, the Uniswap protocol itself cannot be stopped because it exists on the Ethereum network and doesn’t have so-called ‘admin keys’ like some other DeFi projects do.
The legal battle between the US SEC and Ripple - the company behind cryptocurrency XRP - took an interesting turn with Ripple filing a motion to compel the US regulator to disclose documents showing whether its employees were permitted to trade XRP and other cryptos. The SEC refused to provide such data citing privacy concerns.
American publicly traded crypto exchange Coinbase revealed that the US SEC threatened to sue the company over its planned lending service. The SEC considers the new yield-generating product as security, without providing any clarity, which the CEO of Coinbase characterized as “intimidation tactics behind closed doors”.