During the past few weeks, bitcoin’s transaction fees have markedly increased and today, it typically costs around $20 to send a payment across bitcoin’s network. The reasons underlying this rise in transaction fees are rather complex but can be namely attributed to an increased number of transactions and the limited amount of transactions that the bitcoin network can handle per second. For today, the bitcoin network can process around 7 transactions per second.
Bitcoin Network Congestion:
Bitcoin price has skyrocketed during the past couple of months, reaching a historical high of around $20,000 earlier in 2017. The soaring bitcoin price has been associated with a steep rise in the number of transactions across the network, which led to great delays in confirmation of transactions. Some operations have been reported to be confirmed days after payments have been actually sent. During the past couple of months, the number of unconfirmed transactions has been constantly rising and according to blockchain.info, there are currently more than 180,000 transactions awaiting confirmation by miners.
This network congestion has increased the transaction fees in a way or another. When you send a bitcoin payment, you will have to pay a fee which represents an incentive for miners who will confirm your transaction. Bitcoin transaction fees are not fixed, as the sender of a payment can choose how much to offer for speeding up the process of confirmation of his/her transaction. Miners are free to select which operation to confirm first, so payments with higher transaction fees are prioritized. As such, to prioritize confirmation of a transaction, one has to increase the amount offered to miners, which contributed to the rise in transaction fees even more.
How Are Bitcoin Fees Calculated?
The system used for calculating bitcoin’s transaction fees is totally unrelated to the number of coins sent throughout the transaction. Instead, transaction fees are calculated on a satoshi/byte basis, so the amount of fees you pay is related to the size of the transaction in bytes. Also, as the value of one satoshi has markedly increased, the transaction fees have skyrocketed too. The average size of a bitcoin transaction is around 226 bytes and with the current bitcoin price (1 BTC = $16,000), 1 satoshi is worth around $0.00016 USD. According to bitcoinfees.info, the fees needed to get your transaction confirmed within 30 minutes (i.e. included within the next 2-3 blocks) are around $20.43.
The least amount of fees one can pay today equals $19.63, which would get your transaction confirmed within 6 blocks (around 1 hour), yet with the increasing number of piled up unconfirmed transactions, the delay in confirmation of your transaction can reach infinity, if you choose to pay the least possible fees.
As such, the rise in bitcoin’s transaction fees is more or less related to the rise in bitcoin price, which was mostly catalyzed by speculators, rather than those who believe that bitcoin is an ideal payment method that will render other payment methods obsolete. Nevertheless, the rising fees and long transaction confirmation times are the main obstacles hindering mass adoption of bitcoin. For example, Steam, the online gaming site, halted acceptance of bitcoin payments earlier this month, mainly because the high fees led to unreasonably high prices. Interestingly enough, according to Steam, when the site added bitcoin as an accepted payment method, transaction fees averaged around $0.20.
Monero’s transaction fees have risen too:
The rise in the price of Monero XMR has also led to an increase in transaction fees. Presently, the fees needed to send a transaction across Monero’s network equal 0.00024 XMR. Consequently, with an average transaction size of around 13,058 bytes, the current approximate transaction fee equals 0.003120 XMR, or $1.248, considering the current price of Monero (1 XMR = $400). You can also prioritize the confirmation of your transaction by increasing the fees up to 4 times, i.e. $4.992.
As such, even though Monero’s transaction fees have also risen, it is still much cheaper than bitcoin’s transaction fees. Also, Monero’s blockchain utilizes an adaptive block size, which means that usually, you won’t have to pay higher fees to prioritize the process of transaction confirmation, as opposed to bitcoin’s network which utilizes a fixed block size.
Monero’s development board is currently developing a solution, known as “bulletproofs”, which is expected to markedly reduce transaction size, which would definitely result in lower transaction fees. Note that the size of a Monero XMR transaction is much larger than the size of a bitcoin transaction, due to Monero’s emphasis on privacy and anonymity.
In the end, it is worth mentioning that the rise in bitcoin’s transaction fees (and other cryptocurrencies too such as Monero) represents a big challenge that will slow down the globalization of decentralized blockchain based cryptocurrencies. Developers have to work on developing solutions that can overcome this obstacle such as the “lightning network” that can reduce the fees for small transactions, or “micropayments”.