Bitcoin Myths: Horrendous Transaction Fees

For over a year, one argument has persisted in discussions about Bitcoin: transaction fees are horrendous. Who wants to use Bitcoin as a means of payment if the fee is higher than the price of the goods purchased? But is this still true?

The network raises transaction costs

In early 2017, two camps emerged from the Bitcoin community – the representatives of Segregated Witness and Bitcoin Unlimited. During this time Bitcoin got the attention of the mainstream, the network grew and the blocks were getting full. Finally the blocks reached the limit of 1 MB. Users had to enter into competition to ensure that Miner included their transactions in a block as soon as possible. This competition resulted in rising transaction fees. The mechanism is the same as in an auction where the highest bidder wins. In between, a transaction cost more than 40 dollars.

Ways out of the dilemma

Those who were already active in Bitcoin Space in 2017 will remember the bitter discussions between the Big Blockers and Bitcoin Core/SegWit. The Big Blockers wanted to increase the blocksize of 1 MB, the SegWit representatives wanted to activate Segregated Witness. In the summer of 2017, the conflict culminated in a split in the community. SegWit became active and Bitcoin Unlimited forked the Bitcoin network to Bitcoin Cash.

What does the world look like six months later?

The Bitcoin Mempool is empty. This means that all accumulated transactions have been processed. Meanwhile Bitcoin has become cheap again. With a transaction fee of 5 Satoshi/Byte the transaction will probably not be written into the next block, but if you can wait a few blocks you have a good chance. 5 Satoshi are significantly less than one cent. A Bitcoin transaction today costs less than one dollar in fees if you can wait. The argument that the transaction costs render Bitcoin useless is no longer true.

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SegWit addresses optimize transaction fees

If you want to save transaction costs, it is best to use a SegWit address. These allow optimized transactions with fewer fees. In addition, some wallet providers allow user-defined transaction fees – the user can determine how much Satoshi he wants to pay per byte. Ledger, Trezor, Coinomi, Electrum and MyCelium offer this service natively.

A look into the future

In the debate on transaction fees, it must be taken into account that we are talking about first-layer transactions. These are transactions that take place on the block chain itself and are also written to the block chain. However, crypto currencies do not scale at the root level. The lighting network is a second-layer solution because it allows transactions to be processed outside the block chain. The costs for this are significantly lower than for an on-chain transaction.

Before you complain about too high transaction fees in the Bitcoin network, you should exhaust all optimization possibilities. In the medium term, the majority of transactions will take place outside the block chain. Transaction costs are likely to continue to fall and become negligible.

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