A few months after two of the biggest cryptocurrency trades, Bitfinex and GDAX, finally adopted the bitcoin SegWit protocol, transaction fees for the currency are finally back to reasonable levels. Bitfinex, February 20, 2018, announced support for bitcoin deposit and withdrawals using separate P2SH witness addresses (SegWit) while GDAX, February 23 introduced ] a phased deployment for all its customers. By the beginning of March, both exchanges had managed to move their entire infrastructure from old bitcoin addresses to SegWit-compatible addresses.
It is important to note that the adoption of SegWit by the exchanges occurred only after the entire cryptocurrency community claimed it for the purpose of reduce bitcoin charges. Nevertheless, after ignoring much of the transaction batching and SegWit request since the latter’s release in August 2017, it appears that the exchanges are finally taking users’ feedback much more seriously.
In a blog post dated February 20, 2018, Bitfinex announced that its upgrade to the SegWit portfolios was motivated by the potential for withdrawal fees lower and transactions on the bitcoin network. Paolo Ardino, technical director of Bitfinex, said:
“As a premier exchange, Bitfinex is committed to improving its leading offering for our loyal and demanding customers.” SegWit not only provides an immediate benefit for users, but also a base for the future development of Bitcoin. “
“By supporting SegWit addresses, Bitfinex attacks three of the biggest concerns of encryption enthusiasts: transaction fees, transaction speed and total network capacity. We’re excited that with this implementation, we can offer our customers Bitcoin withdrawal fees up to 20% lower, as well as faster transaction speeds than ever before. “
For sending and receiving bitcoin, Bitfinex users were provided with Segcit compatible bitcoin portfolios.
Coinbase’s GDAX also made a similar statement, with the company’s product manager, Alex Sieke, publishing a blog on his own. From now on, all bitcoins coming in and out of Coinbase and Bitfinex will go through a SegWit address, which will reduce the size of transactions and, therefore, lower costs in a mined block.
Aside from these exchanges, ShapeShift, a popular service used to exchange one cryptocurrency for another, also deployed support for the transaction batching Feb. 22 2018. The company was already one of the only big adopters of SegWit in October 2017, while the adoption of the feature was almost nonexistent. Support for both transaction processing as well as SegWit means that ShapeShift currently uses the most efficient way to transfer bitcoin between portfolios.
As expected, the increased adoption of SegWit has had a remarkable impact on Bitcoin network fees. While the fees were already lower than they had been in 2017, thanks in part to lower transaction volumes, the migration to the enhanced protocol has further improved the situation. For example, at the time of writing this article, transfers can be completed for a few cents each, away from the dozens of astronomical dollars seen last year. A Reddit user even claimed to have transferred $ 16,000 of bitcoin (~ 2 BTC) for as little as $ 0.20 fee.
Perhaps motivated by the reduction in network congestion, cryptocurrency trading has also begun to compete for the lowest Bitcoin withdrawal charges. On March 1, 2018, Binance tweets a 50% reduction to 0.0005 BTC per withdrawal, a movement that was soon paired by Kraken. The next day, Bitfinex decided to follow suit and reduced by 33% his withdrawal charges reducing their amount to 0.0004 BTC
ShapeShift, however, currently offers the lowest withdrawal tax on all exchanges, at a mere 0.0001 BTC.
The bitcoin mempool, an aggregate size of all transactions pending to be extracted, also saw a noticeable reduction in size once the exchanges had successfully migrated their infrastructure to SegWit. As the size of mempool has a significant influence on the transfer costs, this event allowed transactions with costs as low as 1 satoshi / byte to be also erased relatively quickly.
Cryptocurrency charges have undoubtedly been a subject hotly debated and contested throughout 2017, as evidenced by the birth of several new cryptocurrences through hard pitchforks. The leader among these was Bitcoin Cash who saw a group of bitcoin supporters create a currency identical to bitcoin with the exception of a larger size block, from 1MB to 8MB. On the other hand, many developers and followers of basic bitcoin opposed this ideology, stating that the move would lead to centralization.
The Bitcoin development community also intends to develop second-layer platforms, such as Lightning Network as a solution to the problem of Scalability
SegWit, with the next Lightning Network, could be bad news for bitcoin forks and other cryptocurrencies that were otherwise identical clones. For smaller transactions, Bitcoin Cash charges have already exceeded those of Bitcoin due to the decrease in Mempool. It is clear that the developers of Bitcoin Cash will have to find a solution to compete. However, if transaction costs are in some way related to bitcoin prices, as coinmetrics suggest, little can be said about the current situation.
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