By
Bhushan Akolkar
April 19th, 2024
The transactions costs on the Bitcoin network have gone lowest in the past six months due to the reduction in network congestion as well as with the implementation of the SegWit support.
Bitcoin, which has been the favorite pick of crypto investors last year, is seen losing its sheen since the mid-December 2017. On the contrary, other altcoins have been seen gaining a lot of dominance in the crypto markets as investors have swiftly moved to other Bitcoin alternatives in the last two months.
As on date, BTC’s contribution to the overall crypto market cap stands at 38.7% or $170 billion, according to the data on CoinMarketCap. Exactly a year ago, BTC’s contribution was 86% which has been continuously declining and more speedily after the early December 2017, where it was last spotted having a market share of 66%.
The key reasons for a such a sharp drop in the Bitcoin price are said to be the scalability issues of the Bitcoin network. Due to a huge participation of investors in buying Bitcoins, its blockchain network got clogged up which finally resulted in sharp increase in the Bitcoin transactions costs and a big reduction in the transaction fees.
As a result of this, the transaction costs for buying Bitcoins went as high as $30 and above, during December 2017 – January 2018. However, in the recent weeks starting this February, the median daily transaction fees on the Bitcoin network has fallen to as low as $1, which is the lowest in the past six months.
With the increasing cost of transactions on the Bitcoin network, crypto investors on a large scale started shifting to other alternate options and hence there has been a considerable reduction in the trading volumes of the cryptocurrency. This cooling down in the demand for Bitcoin has resulted in the reduction of network congestion thereby freeing up more space within the network blocks.
Moreover, another technical advantage of the Bitcoin network is that a single Bitcoin transaction can include payment to multiple recipients simultaneously. This will effectively pack more payments in lesser space on the blockchain. Earlier when the fees on the Bitcoin network were low, companies didn’t bother of such sort of optimizations. However, as the need arose with the increase in network congestion, companies started considering these optimizations thereby resulting in the huge increase of more number of outputs per transactions in the recent weeks.
Also, the latest development is that the Segregated Witness (SegWit) was recently added to the Bitcoin core client version which was released on Feb 15. 2018. The SegWit is the Bitcoin’s scalability upgrade which has been designed to have a more space-efficient way of packing data into the blocks thus making transaction fees faster and transaction speeds lower. Two days back, SegWit support was added to Bitfinex exchange and is also scheduled to release on the most popular Coinbase exchange by mid of next week.
However, the SegWit is not an all-stop solution. If 100 percent of the transactions on the Bitcoin network use the SegWit support it will approximately double the network’s capacity. But beyond that with an increase in further demand, developers will have to look at more alternatives.
One of the most sought after developments is the full-scale implementation of the Lightning Network which is basically a second layer protocol developed atop the Bitcoin network which can increase the Bitcoin network capacity dramatically by taking transactions off the Bitcoin blockchain.
However, in spite of the reduction in Bitcoin transaction costs, the price of Bitcoin is seen correcting significantly and has now moved close to around $10000 levels. The correction has spanned across the entire crypto market as all of the top 20 cryptocurrencies have corrected on the indices.