Bitcoin seems to have taken a much needed break from its soaring transaction fees. And, about time actually. Companies such has Stripe, Steam, or Fiverr have all stopped accepting payments in Bitcoin citing high transactions fees to be the basis of this decision.
With the fees almost tripling last year (reaching an all-time high of $55 USD), data from CoinMetrics indicate that Bitcoin miners are now taking less than a third of the value of they were charging the previous year.
Maybe curiosity did kill the cat, but we’d definitely like to take a closer look at what caused the sudden plummet.
With the Bitcoin frenzy in 2017, it seems EVERYONE took to the network from the Fear Of Missing Out (FOMO). Unfortunately, this caused quite a traffic jam on the network, leading to bidding wars for block space. The excessive fees can be accounted for by the high demand of unprocessed transactions clogging the ‘memory pool.’
Unprocessed transactions get sent to the memory pool (or ‘mempool as it is called) which is a digital waiting area where funds wait to get validated. The higher the fee someone is willing to pay, the quicker their transactions are processed. While you can choose from a range of transaction fees on Bitcoin, picking a low fee would mean transactions being processed in hours, or maybe even days. Some wallets and exchanges have even automatically set a high standard of transaction fees to ensure a rapid transaction process.
The year 2018 has things settling down as the excitement around Bitcoin quietened a bit. Accordingly, the number of transactions have also decreased to nearly fifty percent. Some believe that the lack of anxious rush to buy Bitcoin has drastically cut down on demand for block space, thereby contributing to the falling of transaction fees. It has also impacted the U.S dollar denominated transaction fees since the transaction fees are denominated in Bitcoin.
But, could such a straight-forward reason be the only one? Seems unlikely.
Rumor has it that new hashing power on the network has enabled an increase in the system capacity and mining frequency. The average mining frequency on a 10 minute block time target is about 144 blocks per day. However, around an average of 164 blocks were mined per day in January 2018 alone, in contrast to the average number of blocks mined per day in 2017, which only amounted to 153- This has led to an effective increase of supply of block space.
In addition to this, numerous solutions to the scaling issues facing Bitcoin have improved efficiency of the system as a whole. These included Segregated Witness (SegWit), transaction batching, and dynamic fee estimation to name a few. However, some wallets and exchanges have failed to implement such solutions leading to much criticism over persisting costly transaction fees.
One potential factor could also be that people got fed up the high transaction fees, and switched to other cryptocurrencies.
It is hoped that this is a rather permanent thing, so as to stay true to the Bitcoin legacy: A solution to transferring cash without the high fees associated with traditional systems.