Bitcoin Crisis Averted–For Now

The median daily transaction fee on the bitcoin network fell to $0.79 on Sunday, a six-month low. That represents a dramatic 97 percent decline from the peak of $34 reached on December 23. The median daily bitcoin transaction fee was more than $10 from mid-December until mid-January but has been declining steadily since then.

The high fees of the last few months have been a crisis for the bitcoin network. Bitcoin fans once touted the network’s near-zero fees as a selling point. But as fees soared in late 2017, businesses started backing away from the network. 

Video game maker Valve stopped accepting bitcoin payments for its Steam platform in December, writing that “it has become untenable to support Bitcoin as a payment option.” That same month Bitpay, a company that accepts bitcoin payments on behalf of merchants, announced that it was setting a minimum transaction size of $100—though the company quickly cut the minimum to $5 in response to customer outrage. Stripe, a major credit card processor, stopped accepting bitcoin payments for customers in January, arguing that thanks to high fees, there were “fewer and fewer use cases” for the payment network.

Bitinfocharts

But fees have fallen in recent weeks. Yesterday, the median bitcoin fee fell below $1 for the first time since September. The question is whether these fees will stay low—or if it’s a temporary reprieve. The bitcoin community is racing to implement new technologies that could allow bitcoin payment volumes to continue expanding without a return of crippling fees.

Why bitcoin fees have fallen

To a large extent, high fees became a problem that solved itself. As fees soared, some users looked for ways to use the network more efficiently, while others stopped using the network altogether.

For example, it’s technically possible for a single bitcoin transaction to include payments to many different recipients simultaneously. This effectively packs more payments into less space on the blockchain. When fees were low, companies didn’t bother with these kinds of optimizations. As fees rose, companies made them a priority. As a result, the number of outputs per transaction has been rising in recent weeks, helping to relieve congestion.