In 2019, the average transaction fee of the Bitcoin network dropped by a staggering 88% compared to 2017. What is the story behind this number? Is it the remarkable achievement of expansion technology or the result of changes in market trading volume? Let's explore in depth and uncover the real reason for the decline in Bitcoin transaction fees.

As a cryptocurrency, Bitcoin transactions are completed on the blockchain network, and each transaction requires a certain transaction fee to incentivize miners to verify transactions and package them into blocks. Therefore, the level of transaction fees directly reflects the busyness of transactions on the network and the willingness of users to pay. In 2017, the Bitcoin network experienced transaction congestion, which caused transaction fees to soar to astronomical figures, which became one of the focuses of discussion at the time. However, by 2019, the transaction fees had dropped so much that it attracted widespread attention and speculation.

First, we need to consider the expansion of the Bitcoin network. In the past few years, the Bitcoin community has been discussing how to increase the throughput of the Bitcoin network to cope with the growing transaction demand. As technology develops, some solutions have been proposed and gradually implemented, such as Segregated Witness (SegWit) and Lightning Network. The application of these technologies enables the Bitcoin network to process transactions more efficiently, thereby reducing the pressure of handling fees.

As an important technical improvement, Segregated Witness improves the capacity utilization of blocks by optimizing the storage method of transaction data, thereby increasing the number of transactions that each block can accommodate and reducing the congestion of transactions. The Lightning Network, on the other hand, realizes fast and low-cost small payments through a second-layer network built on the Bitcoin blockchain, reducing the burden on the main network. The combined application of these technologies has brought significant expansion effects to the Bitcoin network, thereby reducing the handling fees paid by users.

Secondly, we need to consider the impact of market trading activities. In addition to technical factors, the transaction volume on the Bitcoin network is also an important factor affecting the level of handling fees. In 2019, the price fluctuations of Bitcoin were relatively small, and the market trading activities were relatively stable, which led to the overall transaction volume not showing a significant increase. Compared with the crazy bull market in 2017, the Bitcoin market in 2019 appeared relatively calm, which also reduced trading activities to a certain extent, thereby reducing the expenditure of handling fees.

However, it should be pointed out that although the handling fee has dropped by 88%, it does not mean that the Bitcoin network is completely free of problems. As the number of Bitcoin users increases and the application scenarios expand, the network still faces the challenge of expansion. Therefore, the technical community is still exploring better expansion solutions to ensure that the Bitcoin network can continue to develop steadily.

In summary, the 88% drop in Bitcoin transaction fees is not only a reflection of the results of expansion technology, but also related to changes in market trading activities. With the continuous advancement of technology and the continuous evolution of the market, the transaction fee issue of the Bitcoin network will continue to be an issue that needs to be continuously paid attention to and resolved. I hope that through the analysis of this article, readers can have a deeper understanding of the development of the Bitcoin network and be inspired by the future development direction. May the Bitcoin network usher in a more prosperous and stable future in its continuous development.

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In December 2017, Bitcoin fees were almost always above $10, sometimes even approaching $30. Today we have almost the same Bitcoin price, but the fees have dropped a lot, most of the time less than a dollar. But is Bitcoin really scaling effectively, or are there just fewer transactions on the network?

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Fees are only part of the story

The Bitcoin network has had some issues with fees over the past few years. Because Bitcoin has a limited block size, a large number of users trying to send all their transactions at once will clog the network. Unconfirmed transactions are stored in a queue called the mempool.

Miners typically accept transactions that pay the highest fees, so people can jump the queue by paying a high enough fee to get their transactions confirmed faster. This leads to something like a blind bidding war, where everyone is constantly paying more money (fees) to get their transactions confirmed first.

The current median fee for Bitcoin is significantly lower than the fees that users first experienced when Bitcoin was around $10,000. According to BitInfoCharts, the current median fee is $0.58. Compared to the $10-$25 fees in December 2017, this is much lower. However, there is a very obvious reason for this. There is not as much demand to use Bitcoin.

The size of the Bitcoin mempool is approximately 88% lower than it was in December 2017. The percentage decreases in the memory pool size and the median fee are almost the same.

In addition to the decrease in the size of the mempool, the number of transactions confirmed per day in Bitcoin has also decreased.

These charts show that in December 2017, the average number of transactions confirmed per day was between 350,000 and 400,000. Last month, August 2019, there were an average of 300,000 to 350,000 transactions per day. So, with lower fees, there are fewer transactions on the blockchain.

Scaling to improve network efficiency?

Features such as Segregated Witness (Segwit) and the Lightning Network were added to the Bitcoin network with the goal of helping the network scale in a secure manner. However, neither has contributed enough to the growth of Bitcoin.

Segwit is a change added in August 2017 that allows more transactions to be confirmed per block. If 100% of Bitcoin users adopted Segwit, we would have a 1.8x increase in effective throughput. Despite being active for over two years, Segwit has never been more than 50% in adoption. Furthermore, it has been stagnant between 35-45% for the past 15 months. In the chart below, the green line represents the percentage of transactions using Segwit.

Second layer solutions aim to facilitate transactions off-chain, taking pressure off the main chain. The Lightning Network has seen some steady growth in its first few months, but still has several significant design issues to address before mass adoption. Furthermore, the Lightning Network has been shrinking since early summer this year. You can read about the current state of the Lightning Network here.

More centralized solutions such as Blockstream’s Liquid have also launched over the past 18 months, but have seen little user adoption. Looking at the Liquid
explorer, this network only processes 1 or 2 transactions per block.

In order for the world to use Bitcoin, Bitcoin needs to address its scalability issues, perhaps by fixing issues in the current scaling plan or implementing other solutions.