Bitcoin transfer fees surge: miners earn more, the network is in trouble

At 10 am on May 20, the Bitcoin network adjusted its mining difficulty for the first time after the halving. The difficulty of the entire network was reduced by 6% to 15.14T, and the unit computing power income was 0.00000381BTC, which was an increase compared to before the halving.

After the halving, some high-power mining machines were shut down, which was the main reason for the decline in the computing power of the entire network.

The difficulty of mining has decreased, but the handling fees of the Bitcoin network are increasing. According to BTC.com data, as of May 20, the daily handling fee income of the entire network was 192 BTC, an increase of 8.3 times compared to 23.5 BTC three months ago. The proportion of network handling fees in total rewards has also increased from 1.22% three months ago to 26.75%.

Industry insiders analyzed that the increase in trading activity is the reason for the increase in Bitcoin transfer fees, which is related to the market rebound after the March 12 crash.

Theoretically, the miners’ income is increasing due to the increase in handling fees. The other side of the coin is the congestion problem of the Bitcoin network. As stablecoins become increasingly used as payment tools, Bitcoin’s currency dream is becoming more difficult to realize. This is related to its future and the beliefs of its holders.
On-chain transactions increased 7.7 times in 3 months

"The exchange prompts that the money has been transferred out, but it has not been credited to my account in two hours." Recently, in a user group of a certain exchange, some people began to complain about the congestion of the Bitcoin network again.

On May 20, the first mining difficulty adjustment was made after the Bitcoin halving. OKLink data showed that the difficulty of the entire network dropped by 6% to 15.14T, and the unit computing power income was 0.00000381BTC, which was higher than before the halving.

Mati Greenspan, founder of Quantum Economics, said that the reduction in mining difficulty should help clear backlogs and reduce transaction fees.

However, judging from the data on May 21, the congestion is still severe. Data from OKLink blockchain browser shows that as of 10 a.m. on May 21, there were 38,381 unconfirmed transactions on the entire Bitcoin network.

During the halving period, the number of transfers on the Bitcoin network fluctuated greatly, which is also one of the main reasons for network congestion. OKLink data shows that in the past three months, the number of Bitcoin transfers on the entire network was the lowest on March 25, with only 208,000 transactions. On May 12, the day of the halving, it rose to 344,000 transactions, an increase of 70% from the number of transactions on March 25, the highest value in recent times. As of May 20, the number of Bitcoin transactions on the chain in 24 hours was 288,000 transactions. It has fallen back from the day of the halving, but it is still higher than the two months before the halving.

The cost of transferring money on the Bitcoin chain has risen rapidly recently

The sharp increase in the number of on-chain transfers may be related to the purchase of major institutions. Recently, many cryptocurrency-related media at home and abroad reported that institutional investors are buying a large number of Bitcoins. Among them, the regularly disclosed asset report of the "Grayscale Fund" shows that a total of 37,824 Bitcoins were purchased from April 15 to May 15, an average of 1,261 per day.

The income sources of miners are mainly composed of two parts: network rewards for mining new blocks and transaction fee rewards for packaging transaction requests on the chain. The active transactions on the chain undoubtedly increase the income of miners from the handling fee.

Data from BTC.com over the past three months shows that as of May 20, miners’ daily fee income was 192 BTC, up 8.3 times from 23.5 BTC on February 21; network fees accounted for 26.75% of total reward income, which was only 1.22% on February 21. On that day, the actual fee paid by traders per KB was 0.00014327 BTC, and by May 20, the fee that traders needed to contribute was 0.00125922 BTC.

On February 21, the price of BTC was about $9,700. Based on this price, the fee paid for 1KB was 0.00014327 BTC, about $1.39. On May 20, the price of BTC was still around $9,700, with almost no change in the price of the currency. When users transferred money, the fee paid for 1KB was 0.00125922 BTC, about $12.21.

In three months, the cost of transferring money on the Bitcoin network increased 7.7 times.

Network congestion may hinder the upward movement of currency prices

After the Bitcoin network output was halved, miners' mining income decreased, but the fee income increased. This seems to be moving in the direction of Satoshi Nakamoto's vision in the white paper. According to his vision, one of the signs of the healthy development of the Bitcoin network is the popularization of this currency, and the main income of miners will shift from block rewards to the fee for packaging transaction blocks.

Miners’ fees are indeed increasing today, but this is not because Bitcoin transactions or usage are becoming more popular.

"At present, the increase in the proportion of transaction fees to miners' income can be understood from two perspectives." Jiang Zilon, head of business at OKLink, analyzed to Honeycomb Finance that on the one hand, after the Bitcoin halving, miners' income decreased, resulting in a smaller denominator; on the other hand, transaction fees have risen recently, and when the denominator becomes smaller, the numerator becomes larger, so the ratio increases.

He believes that the short-term fluctuations in transaction fees after the Bitcoin halving will not become a normal phenomenon. Although the number of unconfirmed transactions has increased, if we look at it in a longer period, such as measured in years, the increase is not outstanding, and the transaction fees have not increased to the previous high point. "In December 2017, the highest daily transaction fee for BTC on-chain transactions reached 642 BTC, accounting for about 35% of the total revenue of miners."

According to past experience, when the BTC chain transfer data is active, the price of the currency is also in an upward cycle. This time seems to be a little different. The user transfer cost has increased by nearly 10 times, but compared with three months ago, the price of Bitcoin has hardly changed.

On February 21, the price of BTC was about $9,700. Before the halving, it once exceeded $10,000. After the halving, BTC failed to hit $10,000 several times. As of 5 p.m. on May 21, BTC was temporarily reported at $9,360.

The price of the currency has not increased, but the transfer fee has increased. Whether calculated in fiat currency or BTC currency, the transfer cost for users is rising rapidly.

In this regard, Jiang Zilong believes that the increase in BTC network fees and transaction congestion generally lags behind price fluctuations. Recently, Bitcoin network congestion and fee increases may also be the result of the market rebound after the sharp drop on March 12.

At present, the difficulty of mining on the Bitcoin network has decreased, while the cost of transfer fees has increased, which has slightly quenched the thirst of miners who were on the verge of shutdown after the halving.

When the price of mining machines such as Antminer S15 and Antminer T17 was just halved, the electricity price cost accounted for more than 90% of the total revenue. According to data from F2Pool, as of May 21, the electricity price cost of Antminer S15 accounted for 70% of the total revenue, with a daily net income of US$0.81, while the electricity price cost of Antminer T17 dropped to 68%, with a daily net income of US$1.26.

Miners’ income has been greatly improved

The increase in handling fee income is good for miners, but it is not a good signal for the Bitcoin network, because it means that the network is congested again. The unresolved congestion problem has always been one of the factors hindering the large-scale application of Bitcoin in actual payment scenarios, and it is also the reason why some early Bitcoin believers finally wavered.

Jiang Zhuoer, a supporter of BCH and founder of Litecoin Mining Pool, has repeatedly expressed a position: once the price of the currency rises and the BTC network becomes congested, BTC users will move to BCH.

Vinny Lingham, CEO of blockchain identity verification platform Civic, also said on Twitter that BTC is currently in a recovery phase since bottoming out at $3,100. If BTC wants to quickly hit its all-time high of $20,000, Bitcoin network congestion and rising transaction fees will have an adverse impact on the upward trend.

Congestion will inevitably increase users’ transaction costs on the chain, but Bitcoin developers are still unwilling to make concessions on capacity expansion.

An even more unfavorable situation is that stablecoins are beginning to play the role of payment tools in the cryptocurrency market. Tether continues to issue more USDT and is regarded as the Federal Reserve of the cryptocurrency world; while Facebook, which has a wide range of users outside the circle, is compromising with regulators to buy time for the official launch of Libra.

When stablecoins with lower volatility enter the public eye, it will become increasingly difficult for Bitcoin, which is highly volatile, to realize its currency dream in payment scenarios. (Fengchao Finance)