The Bitcoin fees are drastically down! 😲 Very cheap to transact suddenly!

pandorasbox (59) in cryptocurrency • 7 years ago

Bitcoin fees are drastically down from the $30 they were at a week ago, down to mere cents to make a Bitcoin transactions. Users are reporting that transactions as low as 1 satoshi/bye (or even 0 !!! free!!) are getting through nowadays.

POSSIBLE REASONS

There are multiple theories on why the mempool is clearing and the transaction fees are going down, but it's likely due to a combination of factors.

Firstly, Segwit adoption continues to rise and is currently at about 18%, up from about 12% roughly a month ago. This squeezes more transactions into a block, naturally leading to more transactions being processed per second. Despite the 1mb blocksize, the Bitcoin network regularly clears 2+mb blocks due to Segwit these days.

The below chart shows the Segwit adoption rate.

One particularly big offender to clogging up the mempool has been Coinbase, which has been recently attacked for it's lacklustre policy of not bundling Bitcoin transactions and instead sending out individual transactions each and every time, as well as lagging behind in Segwit adoption. Since Coinbase is one of the largest serviceproviders for Bitcoin worldwide, and many people transact through them their policies created a 'spam' on the Bitcoin network that was unnecessary.

It looks like recently Coinbase changed their ways and are now implementing bundling and Segwit, and it's speculated that this has led to a significant decrease in the mempool.

These factors aside, there is perhaps an even bigger reason for the current cheap transaction fees: Bitcoin's hashrate went up, but the difficulty settings have yet to adjust to it.
Once the difficulty setting adjusts (once every 2 weeks) then the blocks will be mined at a slower rate again, which will perhaps lead to an increase in the mempool again.

For the time being though, people are reporting on Reddit that transactions as low as 0 satoshi's per by are getting through with some patience. You read that right: that's free transactions like Bitcoin used to have in the past. 🤯
And I've read multiple reports mentioning sub-10 sats/byte transactions work fine.

TAKE ADVANTAGE WHILE YOU CAN

In about 11 days from now the difficulty for mining Bitcoin will adjust by an estimated 16%. It is unknown if this is enough to fill the mempool again, or if Segwit and Coinbase's measures is enough to counter it. Any effect on the mempool will occur after the difficulty change, in any case.

This means that if you want to move some Bitcoin funds around, now is the time to do it cheaply. Consider the following:

This offers a cheap way to move your funds off of a Legacy address and into a Segwit address
If you have many 'inputs' into your BTC account, consider moving the entire stash to reduce inputs to 1 in order to ensure cheaper fees in the future
If you have your funds split up into several addresses, this offers a cheap way to consolidate funds into one address

If you make a Bitcoin transaction be sure to check your wallet's settings to ensure you are not over-paying for your transaction fees, as many wallets will have a default higher fee enabled, sometimes 100 sats/byte!
And it is probably not a wise idea to try a 0 fee transaction - despite the fact they are getting through, you may have to wait a long time before it actually does as paid transactions still get priority.

(Art by Roy Lichtenstein)

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7 years ago by pandorasbox (59)

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cryptoeater (69) · 7 years ago

This is good news for bit coin holders but bit coin with have to do a lot more to stay competitive. Also, does this mean exchange fees are lower too or do I still have to pay 20 dollars if I'm transferring from exchange to exchange

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pandorasbox (59) · 7 years ago

Unfortunately it doesn't change the withdrawal fees that exchange charge, they are a fixed fee that exchanges themselves set. I imagine they will lower it eventually if the transaction fees remain low, but it will probably take a while and almost certainly longer than it will take before the difficulty settings adjust again.

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kapteinb (37) · 7 years ago

So I have a question that is probably a very dumb question:
Why does the difficulty have to increase? Wouldn't users be better off with keeping the difficulty low so we can keep our cheap transaction fees?

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1 vote

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pandorasbox (59) · 7 years ago

Not a dumb question! :)
It changes automatically based on the hashrate, to keep generating blocks at more or less the same rate. If the hashpower increases then blocks are found quicker by the miners, and thus processing time increases. But also... the amount of Bitcoin being mined goes up as blocks are found quicker. This is the reason why the difficulty adjusts, to ensure that blocks keep getting found at a steady pace to keep the amount of new Bitcoin that hits the market at a steady pace.

Otherwise instead of taking 22 years for all the Bitcoin to be mined, it would be sped up and all the Bitcoin would be mined in months, possibly weeks! I imagine the amount of hashrate is about 1000x higher than a few years ago. Without a difficulty adjustment, this means there would be 1000x more Bitcoin found than in the past. This would obviously have a very negative effect on price.

Essentially, the less Bitcoins are mined, the more valuable each Bitcoin gets. This is why the difficulty mechanisms exists, in order to guarantee a steady, but declining, influx of new BTC as time goes on.

Fast transactions are awesome with faster blocks for users, I agree. But long term, it is better to keep the difficulty adjustment in order to ensure this system stays operational for years to come instead of suffering hyperinflation!

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kapteinb (37) · 7 years ago

Thanks, that does make somewhat sense. :-)

Still though, wouldn't it be a better solution to reduce the reward per block instead of increasing the difficulty of processing them?

And what happens in 22 years when there are no more Bitcoins to mine; will the difficulty stop increasing then?

$0.02

1 vote

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pandorasbox (59) · 7 years ago

Reducing the reward per block means that miners get even less reward. See, a higher hashrate means that more miners joined the network and thus the block reward needs to be 'shared' by all of them (actually one finds it and the others don't but over time it averages out). In other words: a higher hashrate already means that you'll find less blocks, because there is more competition. Your profit ratio as a miner goes down.

If the block reward would be further reduced, not only would they find fewer blocks due to competition, but when they do they would also find less Bitcoin. This makes it doubly less rewarding to mine Bitcoin, giving an even lower incentive to mine Bitcoin.

It's a precarious balance, and yes many people feel like this system can be improved. However it is hardcoded into Bitcoin and thus would require a hardfork (like Bitcoin Cash) to change this aspect. And also it would be a deviation from the Satoshi whitepaper, which is sacrilege in itself according to many.

After 22 years no more Bitcoin will be found, correct. So miners no longer receive blockrewards. However, miners also earn an income through the Bitcoin transaction fees. These fees are expected/intended to be big enough by that time to incentivize miners to keep validating blocks. Right now the miner fees have been pretty high already, because of the fact people are paying a lot of fees to get their transactions through. With more usage, fees are expected to be high as well.

Nobody knows for sure how this will pan out and if this plan will work in the future! It's all still experimental so we will have to wait and see..