Toward the end of 2017, Bitcoin transactions were so high that some users quit using the cryptocurrency. On December 22nd, for example, bitinfocharts.com reported that the average Bitcoin transaction fee was a whopping $55. Three months later, the transaction fees have lowered. However, this hasn’t ended the debate about Bitcoin’s high transaction fee problem.
When Bitcoin was launch in 2009, it received lots of praise for having low transaction fees and fast payments. Its founder, the pseudo-anonymous Satoshi Nakamoto, had laid out a plan of how Bitcoin would attract a never-ending spring of users. Satoshi designed Bitcoin to be a peer to peer network. Bitcoin owners could send coins directly to others without the need of an intermediary.
The network has a public ledger known as the blockchain. This ledger stores Bitcoin transaction data in an incorruptible manner. A group of computer networks verify transactions completed on this ledger in a process known as mining. The miners, people who run these computer networks, verify the transactions by solving complex math problems. Every time they verify a transaction, it’s added to the blockchain. A transaction once verified cannot be changed.
Reward for Mining
Satoshi proposed that Bitcoin miners be rewarded for their efforts. As such, making a Bitcoin payment is never free despite the fact that it’s a decentralized platform. Users are charged a fee every time they send payment. In general, the fee is not fixed- users choose the amount of fee they want to pay miners. Most Bitcoin wallets make a recommendation of the fee to be paid to complete a settlement in good time. The higher the fee, the faster payment is processed. On average, a single block of a transaction takes 10 minutes to be processed.
In addition to receiving transaction fees, Satoshi also proposed that new Bitcoins be introduced during a mining process. In its initial stages, 50 Bitcoins were introduced after every blockchain completed. Miners who helped complete the blockchain earned the 50 Bitcoins as a reward. Later, the blockchain reward was halved to 25 Bitcoins. Currently, miners have rewarded 12.5 Bitcoins for every blockchain completed. Learn more about
transaction fees on https://www.abitgreedy.com/Bitcoin-transaction-fees/.
The rise of Bitcoin transaction fees
According to bitinfocharts.com, the costs of sending a Bitcoin payment stood at an average of $0.02 in January 2012. The fee never went above $0.1 up until July 2016. At the beginning of January 2017, the transaction fee averaged $0.333. But then Bitcoin started to attract widespread attention.
As Bitcoin’s value climbed from $1000 in January to $19,000 by the end of 2017, the transaction fee increased. Online merchants began accepting Bitcoins’ payment. Its revolutionary blockchain technology helped aid new cryptocurrency networks. Powerful Bitcoin mining machines replaced GPU Bitcoin miners.
The demand for Bitcoins began outstretching supply. This went on until the cost of sending a Bitcoin payment became unbearable. Toward the end of December 2017, users were expressing their frustrations about Bitcoin’s unbearable fees in all leading forums. Bitinfocharts.com reported that Bitcoin payment fee had soared to $55 per a transaction on 22nd December.
Drawbacks of High Bitcoin Transaction Fees
Major Merchants stopped accepting Bitcoin
Bitcoin was gaining popularity among merchants as its value increased. Hundreds of online retail stores opened doors for the digital payment network in 2016 and 2017. But as its transaction fees hit the roof and its prices fluctuated, some retail stores dropped it as a payment option. In January 2018, coindesk.com reported that Microsoft had temporarily dropped Bitcoin as a payment option due to the high fees. Another major retailer to have stopped Bitcoin payment was ‘Steam,’ an online gaming platform.
Adoption Rates Dropped
There is no doubt that the Bitcoin mania is now lower than it was in the last quarter of 2017. Bitcoin’s price dropped from an all-time high of $19,000 to $10,000 in just a few weeks. The drop in price is majorly attributed to bad press caused by the currency’s high fees, Bitcoin’s energy consumption problems and a rise of “better alternative coins.”
Bitcoin Liquidity dropped
At the start of January 2017, Bitcoin dominated 80% of the cryptocurrency industry’s trading volume. As its fees went up, new cryptocurrencies emerged that charged lower fees and had faster payment systems. By January 2018, Bitcoin’s dominance in the market had dropped to 36%. By contrast, the rise of altcoins such as Ripple and Ethereum rose. Both Ethereum and Ripple charge significantly lower fees and process payments faster.
More Energy wasted
While Bitcoin’s high prices are a cause of frustration to users, it’s a cause of joy to Bitcoin miners. After all, they are the benefactors of the high fees. Unfortunately, the process of mining Bitcoins also consumes a lot of energy. The machines used to mine Bitcoin deploy a guess-work kind of system to solve math problems and verify transactions. On average, it takes 10 minutes to verify a Bitcoin transaction and 77Kws of energy. In total, Bitcoin mining around the world is higher than the total energy consumption in Nigeria, Africa’s biggest economy.
If Bitcoin transactions keep going up, more people will be interested in mining. And more energy will be wasted in the process. Energy wastage is a particularly big problem as it leads to carbon emissions. Increased carbon emissions in the air are often attributed to global warming and changing weather patterns for worse.
Way to Lower Transaction Fees
Although Bitinfocharts.com notes that Bitcoin transactions have now lowered to an average of $1.571 per transaction, there is an urgent need to keep the fees low. One of the solutions proposed in 2017 was to introduce a technology known as a Segregated Witness.
This solution helps lower transaction fees by increasing the size of a Bitcoin block from 1MB to 2MB. With this, more data is held in one block. When completing payments, sending larger sized Bitcoin blocks usually result in lower transaction fees. Unfortunately, not everyone feels that segregated witness is a long-term solution to helping lower transaction fees. This led to the split of the Bitcoin network into two, leading to the launch of Bitcoin Cash in August 2017.
Since Bitcoin’s founder, Satoshi Nakamoto, no longer makes any suggestions about improving the platform, there is a great need for developers and miners to come up with a viable solution. Both the high transaction fees and high energy consumed in the mining process are urgent issues that need to be solved. If these problems are ignored, Bitcoin’s future won’t be good. Thank you for reading this article. Stay updated with intriguing content by visiting our website often.