Bitcoin transaction fees hit record highs

Bitcoin transaction fees have hit record highs - the average fee is already over $ 60. Even though the average transaction fee on the Ethereum network is also high, it is significantly lower than the fees on the Bitcoin network.

(It is necessary) to adapt the web to the activity of miners

Online transactions Bitcoin are handled by processing blocks of transactions. Miners compete to mine the bitcoin block, and the difficulty of this process is constantly adjusted. The Bitcoin protocol is designed with an average processing time of 10 minutes per block, while the processing time is regulated by changing the difficulty level: if the hash rate (hash rate(i.e. miners' activity) increases, block extraction becomes faster than 10 minutes and the difficulty level has to be increased. Likewise, the difficulty level must be lowered if overall digging activity declines.

The difficulty level is an important tool for regulating activation and production kryptowaluty at a fixed pace; second, it ensures a uniform block production time, which can prevent possible fraud attempts. Under the Bitcoin protocol, the level of difficulty is adjusted after a certain number of blocks have been processed, namely 2, i.e. approximately every other week. Combined with the limited block size, the average block creation time is a bottleneck in terms of Bitcoin network capacity.

Unexpected drop in hash rate

Recently, the hash rate of miners has dropped significantly, which some cryptocurrency analysts associate with the coal mine explosion that caused massive power cuts in China's Xinjiang mining center, accounting for about a quarter of the global hash rate. At the same time, the shortage of microprocessors limits the possibility of adding new miners to the mining pool.

The Bitcoin network infrastructure does not seem adapted to such sudden drops in mining activity as the difficulty level only changes every other week. As a result of the discrepancy between mining activity and level of difficulty, excavating one block now takes significantly longer than the foreseen 10 minutes, thus reducing the speed of processing on the network. The growing demand for transactions on the Bitcoin network with lower bandwidth is accompanied by an increase in fees. This effect may persist until the next difficulty level adjustment in early May; hopefully more miners will come back to the network and the hash rate will go up again.

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The difficulty level in the Ethereum network is regulated more frequently

The current version of Ethereum also uses mining to verify transactions and includes a dynamic correction of the mining difficulty level. However, this level is updated much more frequently as you can see in the chart below, and therefore ethereum is not as sensitive to changes in the hash rate as bitcoin:

The original assumptions behind bitcoin did not seem to take into account the possibility of sudden, drastic drops in hashing rates, which is why newer technologies such as ethereum have an advantage in terms of transaction processing. This could also be one of the reasons why Ethereum it has surpassed bitcoin in the last few days as the relative inability to use bitcoin has become even more apparent.

About the author

Anders Nysteen - joined Saxo Bank in 2016 to the department Quantitative Strategiesand its main goal is to develop mathematical trading strategies and asset allocation models. Anders holds a degree in physics and nanotechnology from the Technical University of Denmark and a PhD in quantum photonics.