While bulls are elated that the price of Bitcoin has more than doubled since the Coronavirus selling pressure that took us all the way to $3,800 on Black Thursday less than two very short months ago, eyes haven’t been turning towards a key metric that highlights network scalability issues in times of surging interest as much as they should be.
The average transaction fee surged 450% from April 28th to April 30th due to the renewed buying interest that pushed the price over $1,000 in a 24 hour span. Unfortunately, after a brief recovery from that level, the average transaction fee shot up again, surpassing $2.94 average transaction fee high on April 30th and posting a new local high at $3.19 as ever stronger buying interest pushed the bitcoin price over the $10K mark. It’s been almost a year since we’ve seen transaction fees this high, and if we go any higher we’re going to start hearing about scalability issues as Bitcoin becomes more expensive and slower to move around. Confirmations have also been very slow to come in recent days.
A lot of fingers are being pointed at exhanges, who are some of the largest broadcasters of transactions on the network. It’s been posited that Bitcoin fees would be near zero if not for all the transactions by large exchanges, which would be great for users moving around Bitcoin, but not so great for the miners, who collectively earned over $1 billion last year in fees alone. BitMex for instance, still has not implemented SegWit, which would be an easy way to lower fees for the entire network.
Last time Bitcoin really felt the heat on transaction fees was November 2017, as we neared the price top of $20K we saw fees around $50 to move any amount of Bitcoin. It’s not clear exactly what caused the crash from these heights, but a high transaction fee doesn’t help, as it highlights scalability issues and gives skeptics fodder to say that it will never be used as a mainstream currency.
We’ve got a lot of maturing technology behind Bitcoin that was either nonexistent or still budding when Bitcoin hit it’s all time high nearly two and a half years ago. The Lightning Network makes it easy to move around Bitcoin quickly and cheaply, and SegWit has over 66% adoption at the time of writing this article. It’s anyone’s guess if we’ll ever see $50 average transaction fees again, but the one this for sure is that this key metric tends to rise along with Bitcoin’s price.
Will the halving cause the hashrate to plummet Leading to even higher Transaction Fees?
This is a disaster scenario which advocates of the system really don’t want to see happen. The fear is that if we don’t see a massive pump in price pre-halving, miners will likely ‘capitulate,’ or shut off their mining rigs and call it a day. In this event there will be less computing power, or ‘hashrate’ to validate transactions and we could see the whole system just seize up before the next difficulty adjustment. This is certainly a doomsday scenario that could take the price to new lows under $3,800, but many Bitcoin believers are certain we’ll have enough computing power to keep the blockchain secure and keep moving funds around easily.
Other key metrics since the price crash on March 12th are looking great. We’re seeing a steady uptrend in hashrate and transactions as well as strong bullish momentum on price. While most have written the halving off as a nonevent, it’s likely to cause some kind of short term movement in price.