Bitcoin, just like every digital currency is characterized by instability which have led to the reduction in Bitcoin transaction fees. Although the instability that is associated with Bitcoin is one that every cryptocurrency enthusiast should be used to, it appears only a handful of people are used to it. At the moment, Bitcoin is embattled with many challenges. Two of them are:
- Nose-dive in the value of Bitcoin
- The drop in Bitcoin transaction fees
Sometime last year, the transaction fees of Bitcoins were so high that they became a subject of discussion. Well, just a few months after, the reverse is the case. Quite surprisingly, Bitcoin transaction fees are now the lowest that they have been since 2011. It’s been reported that Bitcoin miners now charge lower than one-third of the amount that they charged as transaction fees as of December 2017. This occurrence has left a lot of people wondering what the reason for the reduction in Bitcoin Transaction fees could be.
So, could the reason for this reduction in Bitcoin transaction fees be as a result of a decline in the demand for Bitcoin, or are there other reasons for this reduction? Let’s find out.
Bitcoin transaction fees are basically the costs of transactions
Bitcoin runs on software that needs many computers for it to run smoothly. Also, the many computers that run it have to be in accord. For this to be done perfectly, there are limitations to the amount of data that the network can handle a time. This limitation in the amount of data that can be processed leads to congestion which ends up leading to an increase in transaction fees.
Since Bitcoin was invented in 2009, it has grown steadily over time with more people joining the network. The drastic increase in the number of people on this system brought about an increase in the cost of transactions which was directly responsible for an increase in Bitcoin transaction fees. Well, in recent times, there has been a sharp drop in the value of Bitcoin. This has led to fewer transactions on the Bitcoin system, and ultimately a reduction in Bitcoin transaction fees.
A Decline in the Cryptocurrency Craze
Ever since the decline in Bitcoin transaction fees, it has been rumoured that a lot of people are leaving Bitcoin as a result of its high transaction fees. In as much as this argument appears to hold water, it is not exactly right. According to Bitcoin developer Rosenfeld, there has been a decline in the craze for cryptocurrency lately. This claim is supported by the fact that Bitcoin is not the only cryptocurrency with a drop in transaction fees. Litecoin, Ripple, and Ethereum are also some top cryptocurrencies that have had a drop in transaction fees.
Increased Efficiency in Blockchain Use
Over time, as a result of constant usage, there has been an increase in efficiency by individuals that want to start up Bitcoin transactions. This increase in efficiency has led to a lowering of transaction fees. Some factors that are responsible for the increased efficiency in Blockchain use are:
- Segregated Witness (Segwit)
- Dynamic estimation
- XTXO consolidation
- Transaction batching
The Use of Segwit
Although this might not be popular, the use of SegWit is a factor that is responsible for a reduction in Bitcoin transaction fees. With SegWit, BTC transactions are separated from their associated signatures. This allows for more transactions to be bundled into a block, while processing the signatures separately. This effectively leads to more transactions being processed at once, thereby leading to a reduction in transaction cost.
The use of transaction batching involves sending a payment to more than one recipient through one on-chain transaction. This brings about a speed-up of Bitcoin transaction process and hence a reduction in transaction cost.
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