There Has Been An Awakening. Have You Felt It? [Part 3]This is the first opinion piece in a four-part series that explores the advent of bitcoin as a store of value and the implications of valuing the cryptocurrency in fiat. Read the first part here and the second here.
Fees: The Third Bottleneck
Just like price, transaction fees can very easily scare away people from entering the cryptocurrency market or, in the worst case, ever spending bitcoin. Even if you’re only investing, and don’t really need to use cryptocurrency on a daily basis, would you rather have to pay cents or a hefty portion of your transaction? That’s a no brainer.
If we see the case of bitcoin it becomes obvious it will soon stop being supported by merchants and people who use it as money. Check the graph below to understand why. exponential growth in transaction fees is indeed a bottleneck. Other cryptocurrencies haven’t suffered the same fate due to different factors. But the most important, I believe, is because of the low volume of users, compared to bitcoin.
Why is that?
Do you remember what happened to the ethereum network during the CryptoKitties boom?
If you see no relation between the network becoming clogged and transaction fees, it’s ok, although they’re intimately related (like Luke and Leia). During the CryptoKitties boom, the network became extremely slow and clogged, due to the fact people were using ethereum as money, in order to buy adorable virtual kitties. So if you actually had to make a payment, transfer, invest in an ICO, whatever it was, the only way to have your transaction processed in a timely manner was drumroll.. to pay high transaction fees!
In bitcoin we can easily check if there is any sort of correlation between transaction fees and the number of unconfirmed transactions. What this can tell us is something really obvious: if there are more transactions waiting to be approved, the fee will increase. We can simply look at the below mempool transaction count, which is basically the number of transactions waiting to be approved.