Recent figures by Coinmetrics shows that more than half of daily Bitcoin transactions have zero economic value. Despite this revelation, some experts believe that the value of virtual currencies is still within the fair market price.
Bloated Bitcoin Transaction Volumes
At the time of writing this article, Blockchain.info reports that there have been more than 220,000 BTC transactions in the last 24 hours. However, figures from Coinmetrics, a cryptocurrency analytics platform, show that more than 60 percent of those transactions have nothing to do with commerce.
According to Elementus Inc., another cryptocurrency analytics service, Bitcoin isn’t the only bloated blockchain network. On average, 45 percent of the transactions on the Ethereum network have no economic value as well.
Most of the transaction volume bloating is caused by spam, shuffling by mixers, and the disbursement of rewards to members of mining pools. Activities of fraudsters trying to spoof, flood or manipulate the market also lead to inflated transaction volumes on these blockchains. One significant disadvantage of the bloating is that it usually causes bottlenecks within the blockchain leading to slow transaction throughput times.
Is it All Noise With No Economic Merit?
Speaking to Bloomberg via telephone, Max Galker, the CEO of Elementus said:
“Mining pools create a lot of transactions with, arguably, no economic value. When a pool earns one Ether, it’s recorded on the blockchain. When the collective distributes fractions of that coin to its members, the disbursements create multiple transactions. Distributions from mining pools to their members accounted for 19 percent of Ethereum transactions.”
Ethereum co-founder, Anthony Di Iorio, however, disagrees with Galka. According to Di Iorio, disbursements from mining pools are transactions with economic benefits. Commenting further, he said:
“If incentive structures are too low, and people are going to see more value to game the system, they are going to do it.”
Fair Cryptocurrency Prices
Nic Carter, co-founder of Coinmetrics believes that cryptocurrency prices are fair even though most of the trading volume lacks economic merit. According to Carter, once the bloat is removed, both Bitcoin and Ethereum become a lot smaller than they appear to be.
Based on his calculations, Carter puts the size of the daily BTC and ETH market at $2 billion and $700 million respectively. With these figures in mind, Carter says that Bitcoin is currently trading about 10 percent within its fair market value.
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