The crisis of congestion in bitcoin’s network shows no signs of abating. The average fee to conduct bitcoin transactions reached $19.20 yesterday. While those fees are funding miner profits, bitcoin traders are left holding the bag. As of this writing, the cryptocurrency’s price is $27,962, down almost 4% in the last 24 hours. It has fallen by 5% in the last week.
Standard narrative has it that BRC-20 tokens, bitcoin’s version of non-fungible tokens (NFTs), are responsible for the surge in transactions. But they are worthless pieces of code without any promise of profits. Still, the script is a familiar one for anyone who has tracked crypto’s shenanigans over the last decade.
Is it Different This Time?
Tom Rodgers, head of research at ETC Group, an institutional trading firm for cryptocurrencies, made the case to CoinDesk that this time is different. According to him, the largest cohort of bitcoin transactions, equal to 359,560, came from transactions under $1, suggesting greater “network adoption” and a “huge increase in bitcoin velocity.”
But that has always been the case. Back in 2021, when bitcoin price set two price records, transactions with a size of 1-2 satoshis per vByte dominated the narrative and had the biggest share, amounting to roughly 18% of the total, of transactions in bitcoin. One hundred million Satoshis is equal to one bitcoin.
According to mempool.space, transactions with a size of between 20-30 satoshis per vByte account for the maximum number of transactions waiting to be confirmed in bitcoin’s memory pool in the last couple of days. Their share ranged from just under 2% to 4%. Those low figures are a pointer to the illiquidity in crypto markets right now.
The congestion in bitcoin’s network is, indeed, different this time though not in a good way for its price.
What is bad for bitcoin price’s action might turn out to be good for its evolution as a payment network.
The lineage of BRC-20 tokens can be traced back to an upgrade proposed by researchers back in 2018. The Taproot upgrade changes the cryptocurrency’s digital signature scheme used in the keys to confirm ownership.
Previously, bitcoin used the Elliptic Curve Digital Signature Algorithm (ECDSA) that had a transaction size restriction of 256 bytes. The upgrade enables bigger transaction sizes and batching many of them together for efficiency. That is the promise. The ensuing congestion due to blockspace demand, however, means that there is still work to be done.
Meanwhile, cryptocurrency exchange Binance stopped bitcoin withdrawals once again this morning. It says it is moving to the Lightning Network to process trading transactions. The network is bitcoin’s version of Ethereum Layer 2s in which transactions occur on nodes connected to the main network. They are then batched together to commit on bitcoin’s blockchain.
The number of such nodes has jumped to 15,500, a 13.1% increase, in the last week. Mainstream tech companies, beholden to regulations and governments, dominate the libertarian dream of free currency. About 30.3% of Lightning Nodes run on Google Cloud followed by Amazon’s Web Services division, which is responsible for almost 25% of the overall share.