Bitcoin’s backlogs are back. Sending fees up and up in a very short time, returning delays, and returning queues with some 80,000 bitcoins stuck at the time of writing, worth around $330 million.
According to 21.co fee estimates, the simplest bitcoin transaction of around 226 bytes now costs more than $2.80 to move within a normal time estimate.
Many bitcoin transactions are at around 400 bytes, so fees of $4 and $5 should be expected, especially as exchanges begin setting default fees which are usually higher than estimates.
The spike in fees is caused by lack of capacity. Bitcoin can not process more than 1MB in transactions, around 300,000, due to a protocol limit which is to increase in around two weeks to 1.7MB dependent on ecosystem adoption of segregated witnesses (segwit).
That might give some breathing room, but it is probable demand for transactions is currently higher than 1.7MB, so backlogs might become the new normal for bitcoin.
They usually occur following fast price increases or decreases as bitcoiners spend their coins or move them to sell or to cold storage after buying.
On August 1st, bitcoin’s transaction levels reached their lowest for 2017 at just 130,000. At that point, bitcoin’s price was around $2,500. It then rose to an all-time high of $4,400 reached this Monday, so transactions rose too to around 300,000.
Bitcoin can’t really process much more than that, so a backlog started forming pretty quickly, with user complaints then following today.
Those complaints are dismissed out of hand by Bitcoin Core supporters who argue that the blockchain is too secure for your commercial payments, with some of them going so far as telling users to go use PayPal or Visa.
Usually, however, users tend to choose other decentralized digital currencies, like Ethereum or Bitcoin Cash. The former managed more than 410,000 transactions in a 24 hour period, a higher level than bitcoin ever has, yet fees remained at just 12 cent.
That’s because both eth and Bitcoin Cash have capacity while remaining decentralized and very secure. Their view is that you can’t differentiate between everyday payments and huge payments because that makes it inconvenient for ordinary users.
However, Bitcoin Core supporters say that the Lightning Network, a less secure second layer protocol, can be used for daily commerce, with the blockchain in effect reserved for the Lightning Network hubs that act like bitbanks.
The problem is they don’t exist and have never been used in production, so no one knows what the user experience would be or if they’d want to use it at all. Which is why currencies like eth and Bitcoin Cash take the approach of having both on-chain capacity and deploying second layers like the Lightning Network to scale in all ways.
But Bitcoin Core has resisted all attempts to increase on-chain capacity above current demand, with some suggesting the debate might be over.
Yet, bitcoin users keep complaining and, although many did go to eth and even chain-split forked to Bitcoin Cash, many of those that remain or newly chose bitcoin keep voicing their displeasure at having to pay high fees on top of billions they already pay miners through block rewards of 12.5 btc every ten minutes.
So there might perhaps be another stand-off as autumn comes because miners have almost unanimously agreed to hardfork increase the base blocksize in November through a segwit2x client called btc1.
Bitcoin Core has already locked out that client from their network, seemingly preparing for a chain-split. It remains unclear whether miners will fork them off in turn. If they do, businesses would probably be split, but neutral parties, which is likely the majority, will probably follow the longest chain with the most amount of work which, if miners would fork, would technically be the segwit2x client.
That client implements segwit unchanged, but also increases the base size, giving total capacity of around 3.7MB. Which would probably be sufficient for current demand and has been found to be safe for current technical capabilities with little, if any, effect on decentralization.