A research paper, recently published, shows that the cryptocurrency derivatives platform, BitMEX, has increased the transaction fees for everyone in the Bitcoin network.
BitMEX Increases Transaction Fees on the Bitcoin Network
The price of conducting transactions on the Bitcoin network spikes up every day for an hour, during the mid-morning New York time. It does so worldwide before returning to normal. According to researchers, the primary cause of this spike in transaction fees is the cryptocurrency derivatives platform, BitMEX.
The report, which was published by OxB10C, revealed that the technologies used by the trading platform are the reason why the trading fees are higher. The researchers suggested that if BitMEX was using more efficient techniques when broadcasting transactions, then they would be saving users around the world 1.7 Bitcoin (worth over $15,000) in fees every day. This amounts to a total of 7% of total daily fees paid on the Bitcoin network, OxB10C added.
The daily broadcast of transactions has a significant impact on the Bitcoin network and the fees paid by users. According to OxB10C, the observation that BitMEX broadcasts transactions daily at around 13:00 UTC is not new. The transactions are usually withdrawals by BitMEX users and other internal UTXO consolidations. BitMEX’s wallet security practice sees them review and process all withdrawals by hand. According to BitMEX, doing so multiple times a day would not be feasible. They argued that while spreading the transaction broadcast over the day would decrease the burden on the network, it would then also decrease the user’s experience.
Whenever a user triggers a BTC transaction, a small fee is added. The fees fluctuate at all times, depending on the level of congestion of the Bitcoin network. This is because there is limited space for transactions to be carried out. If there are too many transactions at the same time, miners tend to focus on those with higher fees and keep the lower fees waiting.
Since BitMEX broadcasts thousands of transactions every day at 13:00 UTC, it leads to a massive spike in trading fees within that period, OxB10C concluded. OxB10C also added that the effects of sending multiple megabytes of optimized transactions lead to a notable spike in the fees rate, which estimators recommend and the users pay. The practice by BitMEX has been going on since September last year.
OxB10C was able to gather such information using the Bitcoin Transaction Monitor they built. It is a data tool for exploring transactions on the network in detail.
Bitcoin Wallets Use Fee Estimators
Several Bitcoin wallets have an in-built estimator that estimates the fees a user would pay to ensure that a transaction is completed swiftly on the Bitcoin network. If the network is carrying out a large number of transactions and the fee is too small, it tends to take longer for the transactions to be completed.
Since BitMEX transactions go through at once, it clogs the Bitcoin blockchain, leading to estimators increasing their fees and users having to pay for it.
Although users like to pay lower fees, the higher fees tend to strengthen the Bitcoin network’s security, especially as the block rewards decrease every four years, OxB10C argued. The next halving of mining rewards is coming up in a week, and it has shown the long-term worries about the security of the Bitcoin network.
Developers and Bitcoin followers have been encouraging big crypto exchanges and wallet providers to implement scaling technologies that would cut fees and allow the network to operate more efficiently. Some of these technologies include Segregated Witness, or SegWit, a scaling upgrade that has been available to the Bitcoin community since 2017.