The Bitcoin network is experiencing a decrease in transaction fees as congestion eases following recent developments.
BTC Transaction Fees on the Decline
The transaction fees paid to miners on the Bitcoin network has declined as the congestion has started to ease following the halving event. According to data provided by Glassnode, a blockchain intelligence firm, the total fees paid to miners on Tuesday was 80 BTC, down from the 201 BTC paid to them on May 21. This decline is closing in on the 57 BTC recorded on May 3.
The data also showed that the percentage of miner revenue from transaction fees dipped by 9.4% from the 21-month high recorded a week ago. The founder of the virtual currency platform Coincurve and CEO of Interlapse Technologies, Wayne Chen, stated that the drop in the transaction fees was due to a return to normal transaction activities and recent mining difficulty changes, which takes place every two weeks.
Users on the Bitcoin blockchain pay fees to miners for processing their transactions. Miners on the network also receive a fixed amount of BTC (6.25BTC) per block mined. The number is halved every four years, and the recent halving occurred on May 11, 2020.
The transaction fees are determined by the current state of the network (congestion level) and the size of the transaction. The block size of Bitcoin is 1MB, which implies that miners can only mine 1MB worth of transactions per block approximately every 10 minutes. However, if the block size surpasses 1MB, the network gets congested, and miners tend to prioritize transactions that have higher fees.
The report from Glassnode shows that network congestion, which is represented by the BTC’s memory pool, has been declining since May 18 when it surpassed the 28-month high of 267,608. By then, the total block size reached 78.5 MB. Since then, transaction fees on the network have been declining.
The Bitcoin memory pool exploded towards the end of April and remained congested a few days after the halving event as investors continued to show increased interest in the cryptocurrency. Chen added that the increased network congestion led the miners to increase the mining fee so that the higher paying clients would have their transactions confirmed faster.
Block Interval Time Also Declines
The decline in fees could be due to the decreasing adjustment in the mining difficulty of the network, hence, resulting in a decrease in the block interval time. The mining difficulty measure shows how hard it is to mine blocks on the blockchain. The mining difficulty dropped by 6% to 15.14 terahashes per second on May 20. This is because the mining power allocated to mine blocks on the Bitcoin network dropped following the halving.
The seven-day rolling average of the network hashrate declined from 120 exahashes per second (EH/s) on May 11 to a lower level of 90 EH/s to May 23. Also, the halving increased the cost of mining by two, which led inefficient miners to close down their rigs. After that, the time it took to mine blocks and confirm transactions increased, putting more pressure on the prices. The mining difficulty reduction at the moment is enticing miners to come back to the Bitcoin blockchain.