Where the high transaction costs at Bitcoin have been a problem for a while, we have seen them surprisingly drop again lately. Due to the popularity of the cryptocurrency, the transaction costs increased, but since the end of December they have gone down again. The question is, of course, why that is so. There is no ready answer here, but there are different theories.
Users are done with high transaction costs
One theory is that people were so fed up with the high transaction costs that they started looking elsewhere. This would result in the network being less taxed and transaction costs falling. Ryan X. Charles, founder of a start-up Yours that builds on Bitcoin Cash, indicates that Bitcoin is useless for smaller transactions because of the high transaction costs and so say goodbye to Bitcoin. The startup of Charles first used the Bitcoin blockchain, but at one point he moved the company to alternative blockchains, before he ended up at Bitcoin Dash. Charles could have a point. For example, Stripe, which processes payments, no longer supports Bitcoin transactions from January because of the high costs. On the other hand, users may not leave but simply carry out fewer transactions. According to blockchain.info data, the number of transactions has dropped from 400,000 per day in December to the current number of transactions of 200,000 per day.
If users do indeed switch from the Bitcoin blockchain to something else, it is not clear where they will go. It is not the case that suddenly more transactions are processed somewhere else. The logical choice would be to switch to Bitcoin Cash, which is seen as a cheaper Bitcoin alternative. Bitcoin Cash, however, only has 10 percent of the number of transactions that Bitcoin has.
Split transactions
Other people are of the opinion that the lower costs have to do with SegWit (Segregated Witness). Segwit increases the processing speed of transactions by separating the information from the transactions from the digital signature. It is seen as a better distribution of the transactions within the Bitcoin blocks. By increasing the transaction rate, more transactions per unit of time could be processed and transaction costs would indeed fall. Armin von Bitcoin, popular Twitter figure, indicates that the decreasing costs are indeed a sign that SegWit is being implemented more and more. A problem with this theory is that it does not explain the drastically reduced number of transactions. SegWit ensures that transactions are processed faster, not that there are fewer transactions.
Bundling transactions together
Another explanation for the phenomenon could be that the so-called batching technology is more applied. In this process, transactions are bundled into one transaction, leaving more room on the blockchain. According to BitGo CEO Mike Belshe that would be the case. Belshe is of the opinion that the rising transaction costs have caused a few large processors to be forced to switch to batching. Coinbase has indeed indicated in the past that it is active with the technology and recently the cryptocurrency trade fair ShapeShift also announced that they are now using the batching technology.
All of the above
Of course, it could also be that a combination of the aforementioned causal reason is for the decreasing transaction costs. In any case, lower transaction costs would be good for Bitcoin and it could cause more people to deal with the cryptocurrency. If the reduced costs, however, have to do with people who have gone, transaction costs would naturally rise again as more transactions have to be processed.
Permanent solution
Where many people see a lasting solution is the Lightning Network. XO Media CEO John Carvalho and Bitcoin developer Meni Rosenfeld think the Lightning Network can ensure continued low transaction costs. The system ensures that the transactions are not immediately processed on the blockchain. Somewhere else the transactions are bundled together and eventually groups of transactions are processed in one go on the Bitcoin blockchain. However, the Lightning Network could cause another problem. If the costs become very low, they could be too low to compensate for the cost of mining when the network finally mined all 21 million coins. At the moment almost 17 million coins would be in circulation.
Not only does the transaction costs decrease, but the value of Bitcoin itself seems to have started to decline again. Opinions are divided on this too and experts argue about the cause.
Good JOb My Fri...
I didn't understand anything about it, but now i get it
I use LTC for my smaller transactions. BTC is for storing wealth.
Yes me too, but still..
It's nice to keep an eye on Bitcoin