Why didn’t Bitcoin Gas fees soar?


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The number of daily payments in Bitcoin has reached an all-time high – and the mempool is still surprisingly calm. The reason is that through batch processing, the space utilization efficiency on the blockchain is getting higher and higher.

Although Bitcoin’s position as a digital gold is becoming more and more stable, it is still a payment system above all. A payment system can be judged by the number of payments it processes. Correspondingly, the historical high of the payment quantity is very consistent with the historical high of the price.

However, you need to search the chart for a while to find this historical high. For example, suppose you look at the number of daily transactions on the blockchain. In this case, you may have an illusion: 401,000 daily transactions, a small peak on January 7, but this value is still a considerable distance from the previous record, such as May 2, 2019 , There are more than 450,000 transactions.

Why is there no record high number of daily transactions in Bitcoin?

Transaction analysis

To understand this problem, you need to visualize Bitcoin transactions. A bank transfer has a sender and a receiver, and technically it can be called input and output.

Bitcoin transactions have any number of inputs and outputs. This is called the “UTXO” system: when you form a transaction, you take a certain amount of coins, and then use them to initiate a coin out. The flow of coins is recorded in each transaction.

A transaction can have multiple outputs, so there are many recipients. Since accepting payment in the form of multiple currencies does not make much sense and is very impractical, we can roughly think that the output of each transaction represents a payment. From this perspective, we understand that the number of daily expenditures is not the number of transactions, but the number of results.

Higher and higher pay per transaction

Therefore, it can be seen that Bitcoin processed more payments with the same transaction volume. A single transaction contains more fees and therefore more output. This can also be proved by statistical data.

At the beginning of 2020, each transaction contains an average of 1.5 payments. Today, this number is approximately 2.2, an increase of nearly 50%.

The main driving force of this development is the so-called “batch processing” of platforms such as exchanges. Instead of processing every payment immediately, they collect them to accommodate the entire batch of payments in one transaction. As we will see later, this saves a lot of money than people suspect at first glance.

As a result, Bitcoin is expanding inward rather than outward: instead of taking up more space, it uses space more efficiently. You can compare it to adding seats on a bus instead of building a huge bus, or compressing files instead of adding a new hard drive.

Easy memory pool

All of these are surprisingly good. Despite the hype and bubbles, the memory pool of unconfirmed transactions remains calm.

The last time there was a big bubble at the end of 2017, the situation looked completely different. At that time, the price increase was accompanied by at least as much cost increase. Sometimes, sending a simple transaction can cost more than $50. Currently, a fee bubble is emerging on Ethereum, with the price of simple transactions soaring above $10, while more complex smart contracts sometimes require $100 or more.

For Bitcoin, under the circumstances at the time, the situation was very loose. Blocks are indeed getting fuller. For example, the size of blocks has reached an average historical high of 1.3 trillion, which is the best proof. However, those who are not too anxious can get through the difficulties well by paying a fee of about 90 cents at this moment; those who want their transactions to proceed in the next block have good prospects. The cost is about 5 euros. Even in the busiest moments of the past few weeks, it has never been more expensive. Those who postpone payment until Saturday or Sunday can also transfer money at a price of 20-30 cents.

At the same time, as a chart on Bitinfocharts.com shows, the amount of sent per transaction has also become significantly higher: in December 2017, it was only more than 100,000 US dollars, but now it has far exceeded 200,000 US dollars (by the way Let me just say that the 30-day average is another record high!). This means that the fee for sending the amount is relatively moderate.

Of course, the premise of all this is that one person sends a “simple” transaction and sends a single input. Those who give multiple inputs will soon double the amount of expenses.

This requires an explanation, doesn’t it?

Why input is much more expensive than output

As mentioned earlier, an input is a “coin”. For example, if you send 0.001 bitcoins (about 30 euros) to my address bc1q4z2pld66zl3t5xeu8kj2puxp4fvl5avpjy52nf, the money will enter my wallet as a 30 euro currency. Later, if someone sends 0.0005 bitcoin to the same address, it will enter my wallet as the second coin.

If I then pay something with Bitcoin, I can spend up to 30 Euros for one coin. One time investment, low cost. However, if I pay more than 30 euros, I must combine the two currencies. Enter twice, the cost is higher.

Unlike the output, each input requires a signature. The owner of the coin must prove that he owns it. Therefore, he must sign the transaction with the key associated with the coin. These signatures constitute a large part of the data in the transaction. On the other hand, the output is only the information of the next owner of the coin.

Give some examples. The size of a standard transaction with one input and two outputs is 220 bytes. If you increase the number of outputs to 6, the size only increases to 344 bytes. On the other hand, if the transaction contains two outputs and six inputs, its size is 960 bytes. This logic is easy to understand. More output only slightly increases the size of the transaction, while more input greatly increases its size.

The impact of batch processing is correspondingly greater. If an exchange sends five standard transactions, each transaction has one input and two outputs, it must be signed five times, so a total of 1100 bytes are required. On the other hand, if it only sends a transaction with one input and six outputs, it only needs to be signed once, which is why it only uses 344 bytes. This is less than one-third.

Therefore, when users use a batch transaction platform like Bitcoin.de, the transaction cost will be reduced. In principle, all intermediaries that manage coins for users can provide such a program. Although the use of batch processing is quite widespread, there may be room for improvement in this area-this is a pretty good prospect for the scale of Bitcoin.