Bitcoin [BTC] Transaction Fees Hit Three-Year Low as Lightning Network, SegWit Help BTC Scale

Bitcoin [BTC] Transaction Fees Hit Three-Year Low as Lightning Network, SegWit Help BTC Scale

Bitcoin transaction fees have been falling for several months now and in January 1st, 2019 they touched lows they hadn’t seen since October 2015.

On January 1st, the medium transaction fees, according to cryptocurrency data aggregator BitInfoCharts, were $0.02 similar to what they were back on October 13th, 2015. Excited about this development, cryptocurrency researcher Kevin Rooke tweeted about it to his followers saying:

“Bitcoin tx fees just hit their lowest level in over 3 years!”

“Jan 1, 2019:

  • Median Bitcoin tx fee = $0.02
  • Total transactions = 234,576

Oct 13, 2015:

  • Median Bitcoin tx fee = $0.02
  • Total transactions = 134,741”

Back in October 2015, the Bitcoin price was trading against the US Dollar at around $270. The price in January 1st, 2019 was $3,744 a 1287% increase.

The transaction count as highlighted by Rooke was 134,741 back on October 13, 2015, but this figure had risen by over 74% to234,576 transactions in a day. A figure that also rose a couple of days later to 290,861 transactions on the 3rd day of the year, a further 42% increase over October 2015 numbers.

Bitcoin network

These figures show that the Bitcoin network has become more efficient capable of processing more transactions at the same fees. Part of the reason is due to technological improvements over the past three years such as the integration of Segregated Witness (SegWit) back in August 2017 which allowed for transaction segregation to reduce the size of each transaction when being processed. The effect of this improvement is that the network becomes faster while also reducing the block generation times.

Another major development that has contributed to the reduction in network fees is the introduction of Bitcoin’s layer two scaling solution – the Lightning Network (LN). Transactions made on the second layer are not actually processed on the main chain which helps to decongest the network.

A decongested network allows for faster transaction processing times and consequently reduces the fees. The LN network has actually picked up albeit at a slow pace than expected. The Bitcoin LN currently has a network capacity of 558.68 BTC (roughly about $2.267 million). The number of nodes supporting the network has also risen several-fold over the course of last year to stand at 5,179 nodes running 18,726 payment channels.

As the Bitcoin network matures, so does more innovations get incorporated into the protocol to improve its efficiency. Similarly, the efficiency of mining equipment is also increasing which should help reduce the transaction fees further going forward.