Bitcoin transaction fees have dropped by 88% compared to December 2017. Is this due to significant expansion results or fewer transactions?

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

Image source: Pixabay

The handling fee is only part of the

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

Miners will 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 it was when users first experienced Bitcoin at around $10,000. According to BitInfoCharts, the current median fee is $0.58. This is significantly lower than the $10-$25 fees seen in December 2017. However, there is a very obvious reason for this. The demand to use Bitcoin is not as great.

The size of the Bitcoin mempool is approximately 88% lower than it was in December 2017. The percentage decreases in mempool size and median fees were almost identical.

In addition to the decline in mempool size, the number of transactions confirmed per day on Bitcoin has also declined.

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.

Expand capacity to improve network efficiency?

Features like 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 Bitcoin’s growth.

Segwit is a change added in August 2017 that allows more transactions to be confirmed per block. If 100% of Bitcoin users used Segwit, our effective throughput would increase by 1.8x. Even though Segwit has been active for over two years, its adoption has never exceeded 50%. 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 are designed 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 there are still several significant design issues to be resolved before mass adoption. In addition, the Lightning Network has been shrinking since the beginning of this summer. You can read about the current state of the Lightning Network here.

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

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