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Bitcoin fees are down: why it happens and what it means

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The average cost of sending a bitcoin transaction is lower than it has been for a year and a half, which shows that the price does not go up. is not the only unpredictable statistic of cryptocurrency nowadays.

But with all the debate about rising costs, it might surprise. After all, it was not so long ago, the fees were so high that a group of major investors and miners created a brand new version of bitcoin, mainly to keep costs at a minimum. lower level.

In retreating a bit, much of the conflict centers on the fact that, although called “fees,” these fees are best viewed as transaction costs necessary to the network, as necessary as the payment of fees. a protocol service, whether via SMS, VoIP or email, or even a pizza.

This is because bitcoin is software that requires all the thousands of computers that run it to stay in sync. To do this easily, there is a limit to the amount of data that the network can process at regular intervals, and users have to pay more to get their transactions in case of congestion.

Thus, as bitcoin became more popular over the past year, fees jumped to more than $ 25, according to a graph of the Bitinfocharts data website.

Bitcoin users, those who really rely on protocol for the most part, were affected by this, as were those who thought that Bitcoin could be competitive with traditional payment systems.

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But, the bitcoin fees have fizzled, down since the end of December.

So, why did the fees go down? The simple answer is that users are doing fewer transactions right now. In December, there were about 400,000 transactions a day, while today Bitcoin sees only 200,000 transactions, according to Blockchain.info data.

“I think it’s really simple,” BitGo engineer Mike Belshe told CoinDesk. “There is a lot less demand for a transaction.”

The question, he added, is: why did the transactions go down?

SegWit and Beyond

If Twitter and Reddit are an indication, the sentiment on the subject tends to be influenced by personal politics, in which case users find themselves in the bitcoin block size debate, which was at the heart of the network economy.

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The popular Twitter figure “Armin van Bitcoin” has acclaimed that low fees mean that “scale discussions are now a thing of the past,” pinning development partly on the growing adoption of Witness separate, a scale feature at the center of longcoin. debate on advertising costs.

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And there is truth in the claims. SegWit reduces transaction costs and adds more space to the blockchain, but it’s still not widely adopted, so it’s hard to say how much it really helped. There has not been much recent increase in the use of SegWit either. In recent months, only about 10-14% of transactions, according to SegWit SegWit Party tracking website.

In addition, SegWit does not reduce the number of transactions, it makes each cheaper.

Another possibility, according to Belshe, is that fee prices “have finally forced” large transaction processors to implement a technology called “batching”, making many transactions into one, to leave more room for blockchain

.

Indeed, exchanges like Coinbase indicated that they were working on implementing the functionality in the past. And on Thursday, the ShapeShift Cryptocurrency Exchange announced that it now chains transactions, arguing that it accounts for 2% of all transfers that occur on the bitcoin blockchain.

However, it is a theory on which it is difficult to obtain accurate data, unless an exchange formally announces that they were using this technique. “It’s hard to confirm with 100 percent certainty,” said Belshe.

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Nevertheless, he argued that even if only one major exchange began to carry out batch transactions, this could have a huge impact on the overall transaction burden.

These kinds of technical theories add to the idea that developers and those who build services above bitcoin can do optimizations to free up space on the blockchain, without compromising some of the its basic features.

“That’s why Bitcoin Core has worked so hard for layer-two solutions to work, and why they focus on optimizing transaction size with features like Schnorr and Bulletproofs.” said XO Media CEO John Carvalho.

“They do everything to minimize the imprint of each type of transaction attached to bitcoin because they are all stored forever,” he added.

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Digging a bitcoin

Others, especially critics of how bitcoin developers favor a smaller blockchain and limited transaction space, argue that lower fees are a consequence of people who are fed up with high fees leaving Bitcoin.

“Bitcoin is not useful for anything that involves low fees, so people migrate to alternatives, which has the effect of reducing charges on bitcoin,” says Ryan X. Charles, founder of Yours counting.

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Charles notably moved his startup from the bitcoin blockchain last year, migrating to alternatives before building on bitcoin cash.

Some users may do the same. Stripe payment processor has stopped accepting Bitcoin in January payments due to high fees, and BitPay, a startup that offers Bitcoin payment services, is differentiated by supporting multiple protocols for its merchants .

Yet, if they push users elsewhere, we do not know where they are going. Bitcoin Cash, the cryptocurrency created as a cheaper alternative to bitcoin, still has about 10% of the number of transactions that Bitcoin currently does.

“Apparently [high fees] does not encourage people to switch to Bash,” said BitGo’s engineer, Jameson Lopp.

Bitcoin developer Meni Rosenfeld does not think so either. In fact, it does not agree with the two theories above.

“The main reason for the decline in fees [bitcoin transaction] is not the adoption of SegWit, and it is not the people who pass to [bitcoin cash] it is simply that the Craze for the purchase of cryptocurrencies has calmed down “. ]

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Indeed, there has been a decline in the external interest for Bitcoin. A lower price has fewer new investors looking for bitcoin on Google and coming to buy and exchange cryptocurrency.

This opinion seems corroborated by the fact that the second largest blockchain by its market capitalization, ethereum, has also experienced a dramatic drop in fees in recent months. The same goes for the litecoin, which is at number five, and XRP, in third place.

Charles also argued that it is possible that the hype cycle of crypto helped to reduce costs.

“I would not be surprised if the Ethereum is also lower because of declining market value, there could be less demand for sending transactions in all blockchains.]

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And it is still possible that the low costs were caused by a combination of the factors described above.

Honoring forever

What do lower fees mean for users? In short, this shows that under the current framework, fees may fluctuate over time.

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The hope is that – finally – the fees will always be “low”, with the word low having some relative definition. After all, a low-cost flight can be better than an expensive bus.

In this way, supporters hope that Bitcoin will one day offer the best of both worlds, supporting high demand and “low” fees reflecting service quality, while supporting miners, IT operators who spend money real-time transactions.

“The fee market is needed to counterbalance the market price. [Theoretically,] The demand for block space is infinite, so there must be levers to handle it,” said Carvalho.

Meanwhile, fees could continue to drop, creating a new “low” standard that could be more user-friendly for today’s Internet users. Carvalho and Rosenfeld, for example, think the famous Lightning Network will help get bitcoin at this point, as it moves more transactions out of the main bitcoin blockchain.

If Lightning really takes off, then low fees could become another problem, as they might not be enough to cover the costs of extraction when the network eventually produces the 21 million bitcoins.

For this reason, the developer Greg Slepak had an almost grim vision of the future, arguing that users should “seize the opportunity” today’s downside costs, adding:

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“He may not come back anymore.”

Fence locks the image via Shutterstock

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