BitMEX Users are Paying High Bitcoin Fees But Do They Really Care?
Crypto derivatives platform BitMEX “has a significant impact on the Bitcoin network and user fees,” wrote 0xB10C, a German Bitcoin freelance developer.
The developer explained that the platform broadcasts multiple megabytes of large transactions into the Bitcoin network which in turn affects the transaction fees paid during the US business hours and European afternoons.
These transactions are primarily withdrawals by BitMEX users which the exchange process by hand and do not spend Segwit outputs.
BitMEX users paying 6.8% of the total daily transaction fee
Between September 2019 and March 2020, BitMEX broadcasted around 415,000 transactions into the bitcoin network which took up 593 MB and a miner fee of 181 BTC, representing about 2.8% of the total bytes and 3.8% of the total fees broadcast in this period.
These fees, however, are not paid by BitMEX but deducted from the withdrawing users.
Miner fees are chosen by users when withdrawing and 10,000 satoshi is the smallest and most commonly (44%) used withdrawal fee while 50,000 satoshi the least by just 3%.
Meanwhile, feerate, the result of the combination of a user-picked fee and an algorithmically chosen number of inputs, estimators adjust their recommendation, and the wallets using them set a higher feerate.
They also recommend a high feerate to outbid BitMEX transactions “which take up a significant part of the available space in the next blocks.”
Although hard to calculate the fees paid by BitMX users, it is estimated they “cause an average fee rate increase by 4 sat/vbyte between 13:00 UTC and 21:00 UTC.”
As such, about a total of 1.7 BTC of additional fees are paid by Bitcoin users per day due to the BitMEX broadcast, 6.8% of total daily transaction fees.
And the spike in fees remains at an elevated level before to pre-broadcast levels at around 22:00 UTC and those with low fee rate might take a few hours until they are included in a block during this period.
No one really feels the pain
Even if these fees are passed on to their users as such still an incentive to lower the fees, do users really care about fees when it is already small enough? Nic carter, co-founder of Coin Metrics said,
“It’s a bit strange to realize that fees would be close to 0 if exchanges used better practices. Their profligacy helps maintain the fee pressure.”
He further pointed out that “the exchange has no real incentive to pursue the cheapest fees for their users.” Developer 0xB10C said,
“On one hand, the additional fees paid by network users (due to the BitMEX broadcast) increase the network security. On the other hand, nobody likes to pay these fees.”
As independent crypto researcher Hasu says,
“the real problem is the fees are so low on an absolute basis that neither users nor exchanges (in second-order) really feel the pain.”
On Friday, a transaction worth over $1.1 bln was recorded at the #Bitcoin Block Chain for 161,500 BTCs. The processing fee was only $0.70. This transaction turned out to be the largest in dollar terms for the entirety of the cryptographic currency’s existence. $btc $btcusd $xbt
— Crypto₿uzz (@cryptobuzznews) May 6, 2020
What can be done?
The developer further noted that the exchange can greatly reduce its transaction size by implementing the current industry standards. The developer recommends,
“Once activated, utilizing Schnoor and Taproot combined with output batching seems to be the most promising for improving the transaction count and size.”
He further suggested using compressed public keys instead of four uncompressed public keys in every BitMEX input. Transaction batching and spending SegWit, whose adoption has declined from its all-time high at 60% peak in January 2020 to below 50%, are other options.