Bitcoin’s increasing transaction costs have scared many people and pulled everyone’s attention. Everyone that is interested in cryptocurrencies is currently aware of Bitcoin’s heavy fees averaging at 20$ and more. This has become mainstream news and brought up some serious questions for Bitcoin’s future that need answering. These enormous fees counteract the purpose of cryptocurrencies being a cheaper and easier payment method, making Bitcoin more of an asset than a currency.
Some payment processors and providers have ended support for Bitcoin as a payment method. Motives behind this are the lengthy transaction times, growing fees and an increasing transaction failure rate. This will continue until these problems are addressed. The overall opinion on cryptocurrencies is very optimistic. More and more businesses will start accepting crypto as payment and there will be support for other coins.
What are the solutions for Bitcoin’s transaction fees?
This has led to the community and the developers to a debate about the ways to decrease the fees. Interesting points were raised about existing solutions not being implemented fast enough. The solution in question is the Segregated Witness protocol (SegWit). The community is angry particularly on Coinbase.
The point about SegWit was raised when it came to light that the exchange has not implemented the protocol, despite being activated on Bitcoin 6-7 months ago. Furthermore Coinbase are responsible for a big part of the volume and almost half of all Bitcoin transactions taking place. The CEO of the payment provider Bitrefill called this new information a “smoking gun” because of how much of the limited Bitcoin space Coinbase is taking.
People have a right to be angry, because if Coinbase implements SegWit they will push the fees lower and will alleviate so much of people’s expenses. The CEO of Coinbase Brian Armstrong responded on Twitter that the company is working on implementing these technical changes. He said that they are really careful and will take their time with the changes, because they are not easy and so they can implement them as smooth as possible. They will be careful so they do not risk any of their customer’s funds.
How can SegWit help with Bitcoin’s transaction fees?
SegWit is a long discussion in the crypto community and it is talked about from a long time. It is an optimization that would help Bitcoin scale more and it halves the transaction costs. It does this without increasing the block size, yet a small percent of all transactions are taking advantage of it. But SegWit’s features are coming at the other exchanges too.
Coinbase will soon implement the feature and other big names will too. When more exchanges implement the protocol, Bitcoin’s transaction fees will decrease. Some think that they will even disappear. More advanced versions of SegWit may come in the future, removing even more problems. Right now not every wallet has SegWit features. Hardware wallets like Trezor and Ledger support the protocol and some other online wallets too.
Other ways to reduce transaction fees
What can you do right now to reduce these transaction fees? There is no magic trick to reduce the fees and instantly make your transaction. The fees correspond to the time your transaction will be verified and the prices are based on the supply and demand. The fees will be higher when the network is overloaded and lower when it is not. There are options for people who don’t need to send their money right away.
A thing you can do is to send your transaction in the right time. You can see how many Bitcoin transactions are waiting to be picked up by miners. You can try to make a transaction when there are less unconfirmed transactions. This way you increase your chance to be picked up by a miner. Some days of the week are less overloaded than others. There are less transactions on the weekend.
You can also use a fee estimator. There are fee estimator tools that help users decide on how much fee they want to attach to their transactions. You can calculate how much you need to put in order to get it through the network in optimal time and not overpaying for instant transactions. Transaction fees are not so easy to predict. That is why some estimator tools are better than others and more precise so you need to choose well.
Another factor is also how much data is sent with the transaction. The sheer complexity of a transaction is taken into account into the fees, meaning that even if you send few dollars you will still have a large fee. But if you send 1000$ you can have a lower fee if there is less data attached to the transaction.
What is the long term for Bitcoin transactions?
SegWit’s features are a big step ahead for Bitcoin’s network and can facilitate payments. The implementation of this protocol by more exchanges and its future versions may reduce Bitcoin’s transaction fees with more than 80%. This should calm down Bitcoin holders and will make a point for Bitcoin doubters. Still there is a long road ahead for Bitcoin and other cryptocurrencies.
There are some safety and privacy problems with the mass adopting the technology and batching up smaller transactions into bigger ones. Despite all of this SegWit should and will be implemented and these problems will be addressed. The future holds many more things for Bitcoin and cryptocurrencies as more and more advanced technologies emerge. Bitcoin developers are working on a lot of projects, one of them being the Lightning Network that would reduce transaction fees more even as more people are using it. Exciting times are coming for cryptocurrencies and we will have to wait and see what the future holds.
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