Bitcoin network fees are currently skyrocketing.
An average transaction conducted over the bitcoin ledger now costs around US$1.53 (125p), having jumped around 40% in the past five days alone.
For clarity’s sake, that means the cost of sending some bitcoin over the platform has become 40% more expensive this week.
Bitcoin transaction fees over the month – Source: ycharts.com
It’s certainly not the highest they have ever been; fees went as high as US$2.50 in December 2022, which was still a pittance compared to the more than US$60 seen in April 2021.
But in this instance, the why is more important than the what.
NFTs on the bitcoin ledger? Surely not
Unlike smart contract applications such as Ethereum, BNB Chain and the multitude of competitors, bitcoin’s blockchain was designed for one thing and one thing only: Processing transactions.
Due to the inability to develop decentralised applications (dApps) on the bitcoin network, it should be impossible to launch NFT projects, play-to-earn games and the various other use cases that have become synonymous with cryptocurrency.
Because of this, bitcoin maximalists – those uber fans who contend that nothing but bitcoin constitutes a truly decentralised currency – feel that bitcoin is ‘pure’ so to speak, free of the ugly monkey jpegs and s**tcoins synonymous with other distributed blockchain ecosystems.
Yet, to their horror, an enterprising former Bitcoin Core developer by the name of Casey Rodarmor has found a way.
Launched earlier this week, Rodarmor’s Ordinals protocol exploits the recent Taproot upgrade to allow data to be stored inside the bitcoin network’s transaction blocks.
The aforementioned maximalists have reacted in disgust to NFTs suddenly appearing on their network. Bitcoin Core developer called it “garbage”, while others have likened it to an “attack on bitcoin”.
Is anyone working on a spam filter for this garbage yet?#Bitcoin https://t.co/Wws8hi54R4— @LukeDashjr@BitcoinHackers.org on Mastodon (@LukeDashjr) January 28, 2023
Either way, the fact that considerably more data is being uploaded to the bitcoin blockchain is causing a surge in fees due to the increase in network congestion.
To give a sense of how much, the largest transaction block in bitcoin history was mined on Thursday, February 2, inscribed with a crude-looking NFT made by Taproot Wizards.
Last night, we made historyThe gatekeepers tried to censor us
But we mined the LARGEST BLOCK and LARGEST TRANSACTION IN BITCOIN’S HISTORY
Special thanks to bitcoin full node operators for supporting our efforts and hosting our 4MB NFT for all eternity!
gm @TaprootWizards ????♂️ pic.twitter.com/uKGG918af8
— Udi Wertheimer (@udiWertheimer) February 2, 2023
Some have called for Ordinals to be censored, which has instigated a debate on bitcoin’s supposedly censorship-resistant philosophy.
It has also advanced the conversation around what bitcoin is used for. While it was originally meant as a currency for exchange, bitcoin has since morphed into more of a commodity like gold, mainly because of how ineffective it is for processing payments.
Why not open bitcoin up to NFTs to increase its utility? That debate will surely rage on.
What influences transaction fees?
Bitcoin’s guide to transaction fees was laid out in the original white paper published by bitcoin’s mysterious and pseudonymous founder Satoshi Nakamoto in 2009 as a means to further incentivise the miners who help secure the network in addition to receiving newly minted bitcoins.
One day, mining revenue will be entirely sourced from transaction fees once the last bitcoin has been mined. This is not expected to occur for at least another 100 years.
In practice, transaction fees go up when network activity goes up. Users who want their transaction prioritised can opt to pay more to get their transaction processed faster, with most cryptocurrency wallets giving the option.
Since each transaction must be bundled into a four-megabyte block for processing, these scalable transaction fees help to reduce spam transactions that may damage the network.
Note that brokerage fees when buying and selling bitcoin on an exchange are entirely different from transaction fees.