Slow Adoption Cost Bitcoin Users $500M in Transaction Fees

The staggered pace of adoption with transaction batching and protocol upgrades like segregated witness (SegWit) have reportedly cost Bitcoin

BUY NOW (BTC) users an extra half a billion dollars in fees since 2017.

Bitcoin fees often spike during periods of high network activity. As the mempool becomes flooded with pending transactions, miners tend to give preference to the ones with higher fees.

During the last halving period, BTC fees reached their highest levels since the summer of 2019. The spike in network activity that surrounded the event came amid increased Bitcoin buying in the hopes of front-running another post-halving price surge.

A Walk Down History Lane

In a typical “Bob to Alice” Bitcoin transaction, Bob sends 1 BTC to Alice with the payment having two outputs: one for the destination, the other for a “change output.”

In the original Bitcoin client software, published in 2009, the 65-byte requirement for public-key identification meant that a transaction with one input and two outputs had a size of 258 bytes.

By 2012, Bitcoin developer Pieter Wuille proposed a protocol change that involved compressed public keys. The subsequently updated core software featured a reduced transaction size of 226 bytes. As Bitcoin grew in popularity and exchange platforms emerged, it became necessary to carry out multiple transactions.

Thus, emerged the idea of batched transactions that aggregated several outputs into a single payment. By combining compressed public keys and batching, each additional transaction required an extra 34 bytes instead of the original 226 bytes.

Since Bitcoin fees are calculated in satoshi per bytes, a batched payment with ten outputs amounts to about 75% in fee savings. Back in the early days of Bitcoin, transactions were sent to I.P. addresses until the introduction of the Pay to Public Key Hash (P2PKH) led to the emergence of BTC addresses.

Today, they are called legacy addresses and begin with a “1.”

Bitcoin BTC SegWit

Pay to Script Hash (P2SH) soon became a desired feature that allowed users to carry out programmable transactions. This period in the Bitcoin evolution led to the emergence of addresses that begin with a “3.”

Then came the idea of SegWit in 2015, a protocol upgrade that would require less block space. That, in turn, meant a reduction in transaction fees. SegWit went live in 2017 and led to the emergence of “bc1” addresses, also known as “bech32” addresses.

The Cost of Slow SegWit and Batching Adoption for Bitcoin Users

According to a July report by Bitcoin consulting firm Veriphi, the slow pace of batching and SegWit adoption by exchanges and wallets in particular cost BTC users an additional $500M in transaction fees. Back in August 2019, BeInCrypto reported that Bitcoin was approaching the $1 billion mark in terms of total transaction fees.

In the year that’s followed, total Bitcoin transaction fees almost topped the $2 billion mark. Figures from Veriphi show that of the $1.95 billion in fees paid since 2012, total batching adoption across the Bitcoin network would have saved close to 10% in fees.

That amounts to a staggering $195.4 million at the current BTC market price. Indeed, U.S. crypto exchange giant Coinbase only rolled out batching on its platform back in March 2020. By the company’s own admission, the introduction of batched transactions would save its customers about 50% in fees.

According to 2018 research by Coin Metrics founder Nic Carter, batching accounted for only 12% of the transactions recorded on the network between November 2017 and May 2018. In late 2017, BTC fees averaged $20, sometimes rising as high as $50.

By the same token (no pun intended), complete SegWit adoption across the network since late August 2017 would have also saved about 190 GB of block space. In miner fee terms, Bitcoin users would have paid close to 37,000 BTC less in fees, which amounts to about $340 million.

With more wallets and exchanges moving towards SegWit adoption and transaction batching, mempool congestion may become a thing of the past for Bitcoin. The next decade of the alpha crypto’s use may begin to see even more efficient transaction fee mechanics.

Do you want to Be In Crypto?
Join our Telegram Trading Group for FREE Trading Signals,
a FREE Trading Course for Beginners and Advanced Traders
and a lot of fun!

Images courtesy of Shutterstock, TradingView and Twitter.

Disclaimer. Read MoreRead Less

As a leading organization in blockchain and fintech news, BeInCrypto always makes every effort to adhere to a strict set of editorial policies and practice the highest level of journalistic standards. That being said, we always encourage and urge readers to conduct their own research in relation to any claims made in this article. This article is intended as news or presented for informational purposes only. The topic of the article and information provided could potentially impact the value of a digital asset or cryptocurrency but is never intended to do so. Likewise, the content of the article and information provided within is not intended to, and does not, present sufficient information for the purposes of making a financial decision or investment. This article is explicitly not intended to be financial advice, is not financial advice, and should not be construed as financial advice. The content and information provided in this article were not prepared by a certified financial professional. All readers should always conduct their own due diligence with a certified financial professional before making any investment decisions. The author of this article may, at the time of its writing, hold any amount of Bitcoin, cryptocurrency, other digital currency, or financial instruments — including but not limited to any that appear in the contents of this article.

Leave a Reply

Your email address will not be published. Required fields are marked *