Low Bitcoin Transaction Fees Cause Concern
Low Bitcoin Transaction Fees Cause Concern
Cash.Tech Newsletter #24: Bitcoin fees hit historic lows as investors speculate on network sustainability
The cost of sending a bitcoin transaction has dropped to levels last seen a decade ago. According to recent statistics, people are now spending an average of around 0.00004541 BTC (approx, $2.04) to send bitcoin transactions, with the median fee even significantly lower at 0.00001292 BTC (app. $0.58). Although these figures give remarkable proof that the Bitcoin network is scaling up, they are also raising concerns among observers about the network’s long-term economic model.
In this week’s Cash.Tech Newsletter, we reviewed the Bitcoin transaction fee decline and the fears around how Bitcoin would sustain miner activity if transaction fees continued to drop. We also consider how the Cash.Tech Wallet allows users to access the cheapest fees for sending cryptocurrencies. Firstly, we will share the customary development update.
Cash.Tech development update
This week, the Cash.Tech development team took further steps towards the release of the highly anticipated Merchant Protocol. The team has now integrated a delete button into the product catalog page for merchants. This feature provides a simple option for merchants to remove from their catalog products that are out of stock or no longer being offered by the store.
As noted in the previous update, the team is also working on an API that allows merchants to receive cryptocurrencies directly from customers. Once this step is completed, the team will connect the logic of the payment process to the production ready front-end. These final steps will make the app ready for use for both merchants and customers
The team anticipates that the release of the Merchant Protocol will further drive the adoption of Cash.Tech Wallet and $CATE tokens. Most cryptocurrency wallets currently do not offer this feature, making it a unique offering from Cash.Tech to promote the use of cryptocurrencies for online purchases.
Meanwhile, the team is still in the process of releasing the latest Cash.Tech wallet version on the Apple Store. We will continue to keep the community updated regarding new development milestones.
Bitcoin transaction fees drop to historical lows
One of the highlights of the bitcoin bull market is the ridiculously high fees and slow transaction times for moving bitcoin on-chain. During the 2017 bull market, the average fee for a transaction spiked as high as $60 with many critics pointing to the congestion as evidence that the Bitcoin network couldn’t scale to serve billions of users. Fast forward to the present, however, Bitcoin transaction fees have dropped significantly and remain relatively cheaper despite the Bitcoin price currently being twice as high as in 2017.
A new study published by Bitcoin firm Galaxy Digital confirms that the cost of sending a Bitcoin transaction is currently sitting at levels last seen in 2011. In fact, the recent run-up to the $69,000 all-time high marked the first significant price spike in Bitcoin history where transaction fees barely spiked in response to increased demand for on-chain blockspace.
(Source: Galaxy Digital)
The report identifies the adoption of scaling solutions like Segwit, transaction batching, and the Bitcoin lightning network as being responsible for Bitcoin’s low fees. For instance, the Segwit integration has lowered bitcoin transaction revenue for bitcoin miners by up to 70% according to a Bank of Canada research. Fittingly, we noticed that the proportion of bitcoin transactions that can use Segwit has jumped from 56% in June 2021 to 80% at the time of writing.
(Source: WooBull)
Similarly, the Bitcoin Lightning network, a layer-2 solution for sending bitcoin cheaply and instantly, has seen remarkable adoption in recent months. While on-chain transactions can cost as high as $2, lightning network transactions cost fractions of a cent and have been used in wide Bitcoin adoption use cases such as in El Salvador. Leading bitcoin exchanges such as Bitfinex, Kraken and OKEx have also integrated Bitcoin lightning options for customer deposits and withdrawals.
These integrations have pushed the Bitcoin lightning network's capacity to new all-time highs. As the chart below shows, users can now move over $200 million worth of BTC daily using the layer-2 solution, further releasing load on the Bitcoin main network.
(Source: LookIntoBitcoin)
Low fees raise concerns about Bitcoin’s economic sustainability
The current situation raises minor concerns around the Bitcoin network’s long-term sustainability. Bitcoin miners are currently incentivized through block rewards (currently 6.25 BTC per block) and the transaction fees collected from senders. However, Bitcoin’s supply schedule means that the number of Bitcoin coming from the block subsidy will continue to diminish as time goes on, increasing the importance of transaction fees for incentivizing miners.
Would the Bitcoin network collapse if there were no block subsidies and transaction fees remained cheaper for users and unprofitable for miners? Long-term speculators believe that Bitcoin on-chain transaction fees must continue to increase significantly to match block rewards.
Satoshi Nakamoto, Bitcoin’s anonymous founder, when quizzed on the subject early on, was convinced that at that point in the network’s history, “there will probably always be nodes willing to process transactions for free." In the meantime, Bitcoin users can enjoy cheaper fees as the network resolves its scalability issues.
Send and receive cryptocurrencies cheaply with Cash.Tech
Cash.Tech Wallet currently supports custom-fee cryptocurrency transactions. This user-friendly option allows users to set fees based on network conditions and the urgency of the transfers. Start sending and receiving cryptocurrencies today using Cash.Tech.
Cash.Tech is already live on Mainnet for Android and iOS users. Android users can now access the app on Google Playstore, with the iOS version coming to the Apple Store in the coming weeks! Apple Users can access Cash.Tech via https://testflight.apple.com/join/In3h8jr9.