Bitcoin Transaction Fees are Dropping to $1, Can This be Sustained Long-Term?
Over the past few days, bitcoin transaction fees have dropped to around $1 for median-size payments, even though the bitcoin mempool size has remained relatively high at above 120 million bytes.
Widely utilized bitcoin wallet platforms like Blockchain are recommending a fee of 55 satoshis per byte, which round up to just above $1 for median-size transactions. Previously, merely one month ago, bitcoin transactions increased to $30 for median-size transactions, particularly on non-Segregated Witness (SegWit) wallet platforms and exchanges.
Given that SegWit can further decrease transaction fees by 35 percent as cryptocurrency hardware wallet manufacturer Ledger explained, if leading companies such as Coinbase and Blockchain integrate SegWit, transaction fees for normal bitcoin payments could fall below $1.
Recently, Coinbase, one of the most valuable cryptocurrency company in the sector along with Bitmain and Binance, was heavily criticized for struggling to implement SegWit and transaction batching. Several analysts went as far as to claim that Coinbase is contributing significantly to the congestion of the Bitcoin network.
In response, Coinbase CEO Brian Armstrong stated that the company will soon adopt SegWit and transaction batching to ensure that users enjoy lower transaction fees and a seamless experience in transacting with bitcoin.
2MB Blocks Without Block Size Increase
BitGo, the multi-signature security service provider and blockchain technology company, revealed this week that 2MB blocks have been mined this week, due to SegWit-optimized transactions and inputs created on BitGo with extremely low fees. BitGo demonstrated that without a block size increase to 2MB, bitcoin blocks can expand to 2MB with SegWit integrated.
The first 2MB bitcoin blocks were mined this weekend (see block 505253 https://t.co/0Eeh5Jk05E – 2.217 MB). These record block sizes were made possible by transactions with numerous segwit inputs created on BitGo with super low fees. (photo credit https://t.co/XYUnX6w6ix) pic.twitter.com/PvGqTcTPwz
— BitGo (@BitGo) January 21, 2018
However, as a Cornell research paper noted, the Bitcoin network could increase its block size to 1.7MB and not affect node synchronization, considering that nodes on the Bitcoin network have significantly more bandwidth than other public blockchain networks like Ethereum.
“Bitcoin nodes generally have higher bandwidth allocated to them than Ethereum. Compared to our previous study in 2016, we see that the median bandwidth for a Bitcoin node has increased by a factor of 1.7x. The typical Bitcoin node has much more bandwidth available to it than it did before. Higher allocated bandwidth indicates that the maximum block size can be increased without impacting orphan rates, which in turn affect decentralization,” read the research paper.
In the mid-term, if on-chain scaling is implemented, its synergy with SegWit and two-layer scaling solutions like Lightning is expected to expand the capacity of the bitcoin blockchain. If the bitcoin blockchain network can handle more transaction, the network will be less congested, leading to lower fees and faster confirmation periods even for large transactions.
Since it remains unclear whether $1 fees on the Bitcoin network are sustainable in the mid-term, and it could take businesses many months to adopt both SegWit and Lightning, on-chain scaling as a mid-term solution is a possibility.