Bitcoin Fee Frenzy: Is It Time to Worry About Soaring Costs?
Thanks to a significant increase in transaction fees that have risen to their highest peaks since April 2021, bitcoin miners are currently enjoying a windfall of previously unheard-of revenues.
The reason for this unusual increase in transaction costs is that Ordinals inscriptions are becoming more and more common in the blockchain network.
Bitcoin Network Activity Soars, And So Do Fees
The need to handle transactions on the Bitcoin network has increased significantly as the Ordinals inscriptions become more visible.
Due to the significant increase in transaction fees brought about by this spike in demand, mining has become a profitable industry for all parties involved.
Source: BitInfoCharts
According to data from BitInfoCharts, the average price of transactions on the Bitcoin blockchain increased from $1–$2 in September and early October to over $37 on Sunday, a figure last seen in April 2021, at the height of the bull market top.
An increase in network activity is the main reason for this jump. The popularity of BRC-20 tokens and ordinal inscriptions caused a spike in transactions on the bitcoin network, which in turn caused congestion.
BTCUSD slightly above the $43K level today. Chart: TradingView.com
The Mempool, the network’s temporary storage for all pending transactions awaiting validation, experienced a delay as the amount of pending transactions reached 470,000.
Further data from Mempool.space demonstrates the extent of the unconfirmed on-chain transaction backlog in Bitcoin, or mempool, which is enormous. As a result, transactions with fees as small as $2 have no priority on the chain. As of this writing, there are close to 350,000 transactions awaiting confirmation.
Source: Dune Analytics
Ordinals Inscriptions Surge Causes Jam
According to a Dune Analytics chart by cryptocurrency asset management company 21.co, users created over 1.2 million new Ordinals inscriptions between Friday and Sunday, jamming the network with almost 300,000 transactions awaiting confirmation.
The community surrounding the king coin has become divided due to the popularity of Ordinals; core developer Luke Dashjr has called them “spams” that require correcting. Nevertheless, extremely high fees have helped Bitcoin miners.
PSA: “Inscriptions” are exploiting a vulnerability in #Bitcoin Core to spam the blockchain. Bitcoin Core has, since 2013, allowed users to set a limit on the size of extra data in transactions they relay or mine (`-datacarriersize`). By obfuscating their data as program code,…
— Luke Dashjr (@LukeDashjr) December 6, 2023
The sudden increase in transaction costs for bitcoin highlights a fundamental problem with its technology’s scalability. Bitcoin has efficiency problems when processing high transaction volumes, despite its resilience stemming from its decentralized and secure foundation.
High fees are essential to keeping bitcoin safe because they stop misuse of the network, which is consistent with its decentralization and low-cost node operating goals. As observed in the past during high fee periods, these dynamics drive network innovation and adaptation.
As the crypto community navigates these undulating waters, a thoughtful consideration of the implications of soaring costs becomes imperative for fostering a resilient and inclusive future for Bitcoin and its users.
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