Bitcoin transaction fees are soaring. Here’s why
Proactive Investors
Published Feb 04, 2023 02:41
Updated Feb 04, 2023 03:00
Bitcoin transaction fees are soaring. Here’s why
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”.
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.
Get The App
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.
Read more on Proactive Investors AU
Disclaimer
Written By: Proactive Investors
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.