There has been a surge in the cost of doing transactions on Bitcoin as the network is suffering the worst congestion in nearly three years. In the last two months, Ethereum’s rising network congestion has been the topic of discussion with several projects shifting its base from Ethereum to others. Bitcoin also has suffered major congestion of its network because as recorded on Wednesday, the mean fee transaction cost was 0.00086764 BTC (BTC, -0.65%), the highest since June 2018. Glassnode has recorded that the average transaction fees so observed was $11.06.
The average fees in Bitcoin have increased by 573% in the last 12 days especially when the price of Bitcoin rallied from $11,200 to $13,800.
Denis Vinokourov, who heads the research division at Bequant, the London-based prime brokerage firm said:
“Bitcoin mempool [memory pool] is back in focus in the wake of rising transaction volumes, causing congestion in the network and consequently driving fees higher,”
The memory pool is nothing but the garnering of all unconfirmed transactions. It is important to understand how this works. Whenever a bitcoin transaction is initiated, it is first sent to the mempool. It goes ahead only when it receives approval from miners. The trend observed now is that Bitcoin miners are able to process only 1 megabyte (MB) worth of transactions per block which is mined roughly every ten minutes. Due to the congestion in the blockchain network which could be a result of the rise in traffic, there is a large-scale delay and creates a backlog.
As has been observed in the case of Bitcoin, the demand is surpassing the supply and miners charge higher transaction fees which causes a ripple effect in general. Network congestions have been observed usually in price rallies. As noted Bitcoin’s 12-day journey has been nothing short of excellent and the rise has been captivating enough to attract more trading. In the last 12 days, the network congestion measured by the total number of unconfirmed transactions in the mempool degenerated by 1800% which is a cause of concern.
With the victorious performance observed by Bitcoin, its hash rate has taken a plunge causing congestion. Mining power which is used to approve transactions and blocks has gone down amid the price rally causing an increase in the waiting times and network congestion.
The decline in hash rates started only in this 12-day period as can be observed from the graph. Before that, the hash rates were functioning at higher levels leading to the smooth functioning of the network. The 7-day moving average of bitcoin’s hash rate reduced from 146 exahashes per second to 120 EH/s implying that the mining power for transaction approval and mining blocks has reduced. Another reason that could contribute to the reducing hash rate is the shift of Chinese miners in Sichuan province to other areas where there are cheap sources of hydroelectricity power causing the drop.