Bored In The Bear Market? Here’s A Cool Chart On Bitcoin (BTC) Blockchain Fees Evolution
What Do Bitcoin Fees Tell About The State Of The Bitcoin Blockchain?
Transaction fees are an important part of the Bitcoin (BTC) blockchain. Miners receive rewards for their work through block rewards and also the fees charged to users when they make a network transaction. At the moment, transaction fees make up around 4% of the total miner revenue per day. However, during the last years, there were moments in which fees spiked to almost $60.
In the last five years, the average fee per transaction is $1.63 with a median of $0.88. These fees are useful for transactions to get into blocks with 1 MB of space. That means that there are close to 1,800 transactions, with an average of 556 bytes per transaction. Each day, there are 144 blocks mined with 260,000 transactions processed per day.
Although most of the transactions are processed, there are some of them that are waiting for miners to approve them. These transactions are currently waiting in the mempool. Clearly, miners try to include the transactions with the highest possible fees to receive a larger reward as soon as they process the whole block.
During the bull run experienced by Bitcoin in 2017, the fees paid by users in the network grew exponentially. As demand for Bitcoin increased, not all the transactions could be processed, thus, there were individuals paying a premium fee to have their transactions processed faster than others.
This was very negative for the whole industry because processing a transaction could cost as much as $60. At that time, each Bitcoin was being transacted at $20,000 and other digital assets were reaching their all-time highs. The fees started to fall as soon as the price dropped from its record and the hype evaporated.
In order to reduce the fees paid by users, one of the proposed solutions was to implement Segregated Witness (SegWit). This software upgrade allows transactions to be smaller in size and allow blocks to process more transactions at a time. At the end of 2017, SegWit adoption was close to 10%, but now it increased to around 35% and in the future, the adoption rate could be even higher. With the implementation of SegWit, blocks can have up to 1.7 MB space without changing their real size of 1 MB.
In the future, with the implementation of the Lightning Network (LN), it might be possible for Bitcoin to reduce fees even more. This is very important for the market since it would allow the network to process more transactions with lower fees and faster.