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Could someone that understands crypto better than me explain why Bitcoin's fees and transactions times have become so high all of a sudden? Is it just a matter

Could someone that understands crypto better than me explain why Bitcoin's fees and transactions times have become so high all of a sudden? Is it just a matter of network congestion, or does it have as its root some underlying mathematical factor instead? Hoping to get a better answer here than on reddit. /r/bitcoin and /r/btc are both biased echo chambers.

JohnJamesRambo 9y ago
The miners only process transactions that have higher and higher fees. This makes lower fee transactions take forever to be processed or never happen at all. Since bitcoin limits how many transactions that can occur in a set amount of time it creates this awful fee-based backlog. The self-serving and shortsighted bitcoin community has argued and bickered amongst itself so long about how to fix this that it may be too late now.
- opportune 9y ago
  Is this a conscious decision on behalf of the miners themselves, or is it a result of mining becoming increasingly more difficult?
  - JohnJamesRambo 9y ago
    My understanding is that it is fueled by greed and desire for short term gains at the expense of bitcoin health in the long run. The people involved aren't the most admirable folk. For instance, this is the leader of the biggest mining company- https://twitter.com/jihanwu/status/731902686379933697?lang=en https://twitter.com/jihanwu/status/731902686379933697?lang=e... A good contrast is that Vitalik Buterin, one of the founders of Ethereum recently said the gas fees for Ethereum are too high (they were still quite low compared to bitcoin) and the miners voluntarily just lowered the gas fees, which determine the transaction costs. It seems to be a very different community running each currency.
  - plokiju 9y ago
    the miners are running software that decides which transactions to include, and I'm sure the software has some logic where it will pick the highest-fee transactions when they can't include them all
  - nas 9y ago
    The limit on transactions per second is a function of the block size, currently 1 MB. Based on what the miners say, they would be interested in increasing the block size. Understand that the miners like high fees but they like high bitcoin prices even more. The fees are only a fraction of the block reward. If the system becomes too expensive then the miners will lose a lot more than just some fees. The 1 MB limit is set by the bitcoin software. The software that most everyone runs is developed by a group called the "bitcoin core". That group has mostly been taken over by the company Blockstream (this is my opinion, others would argue the team is diverse and not controlled by any one company). Blockstream's business is based on off-chain transactions (i.e. the Lightning network). It is in Blockstream's interest to get a feature that enables Lighting into the Bitcoin software (SegWit). Miners have been refusing to upgrade. One theory is that SegWit will disable a special optimisation that one of the biggest miners uses (ASCIBoost). In any case, Bitcoin core team refuses to increase the block size and the miners have been refusing to enable SegWit. The SegWit upgrade is a good thing, IMHO, even though it seems like a pretty complicated feature. Having the ability to open "payment channels" and make cheap transactions off the main chain would be great. However, I feel that a block size increase to 2 MB or 4 MB is long overdue. I don't understand all the technology issues so maybe there is some really good reason not to do it. It is clear to me that Satoshi (founder of Bitcoin) and Gavin (previous leader of Bitcoin core group) felt that the block size could be scaled to keep fees low. Both software improvements and hardware/network improvements would progress quickly enough to scale with demand. The current core team does not think so and think off-chain transactions are the only way to scale now.
zachaller 9y ago
There are a few things that contribute to this bitcoin has a block size of 1MB and they only add new blocks every 10min. There are only so many transactions you can fit in that block size. The other thing is as the block reward gets half'ed miners will ask for more fee's as well as miners will mine blocks with higher fee's first. So as a way to combat some of the congestions people increase the amount of fee they are willing to pay to get included into a block faster.
plokiju 9y ago
Early on in bitcoin, a 1MB limit was added to the block size, which puts a cap on the number of transactions that can be included in each block. Now that bitcoin is more popular, there are more transactions then can fit in each block, which means miners will only include the transactions that include the highest fees. There are a number of ways to solve this (the easiest being expanding the block size), but the community is split on the best way forward, so the congestion is getting worse
marcell 9y ago
Bitcoin blockchain has a limit of 1MB of transactions in a block. This was set in 2013, when Satoshi put it in place. He didn't give much explanation for it, but it was probably to avoid a spam attack. He said it could be raised later: https://bitcointalk.org/index.php?topic=1347.msg15139#msg15139 https://bitcointalk.org/index.php?topic=1347.msg15139#msg151... There are arguments for and against increasing the blocksize. For: - Support more transactions per second - Lower fees for users Against: - Hardfork requires all full node operators to upgrade, or they could see incorrect balances - Lower fees mean that miners make less money Also, generally, there are some philosophical differences between the sides. The big-block side usually wants bitcoin to be more like a payment network, wherease the small-block side typically views it more as digital gold and store of value.
- zby 9y ago
  "Lower fees mean that miners make less money" - not really. There are two mechanisms: 1. The congestion would mean bigger fees 2. In bigger blocks there will be more transactions - so more fees in the block The most probably cancel each other. Actually the big miners seem to be in favour of the Bitcoin Unlimited big blocks. What they want to stop is SegWit which is needed for scaling bitcoin off chain with Lightning etc. There is a conspiracy theory about that - and it actually makes sense to me - which is that SegWit would eliminate ASICBoost (which is an optimization technique that is implemented in some ASIC miners). But there is also another narrative that Lightning would mean banking entering the Bitcoin community - and that is why it should be stopped. Bitcoin can never become a good payment processor - this would require many orders of magnitude bigger blocks (now bitcoin can process about 7 transactions per second, VISA can process 50K transactions per second). And while storage for bigger blocks grows linearly - the other algos have probably worse complexity.
- Obi_Juan_Kenobi 9y ago
  > This was set in 2013 Wrong date, it was July 2010 I believe.
drcode 9y ago
There's a discontinuity in transaction pricing caused by the fact that Bitcoiners are hitting a hard 1MB limit on the blockchain. It's kind of like the situation with airliners: If there are empty seats left, it's cheap to add another flier. However, once the seats are all taken, it gets extraordinarily costly to get another passenger on board, to the point that they have to violently evict someone to make a spot available.
Obi_Juan_Kenobi 9y ago
This is a reasonable start: https://en.bitcoin.it/wiki/Block_size_limit_controversy https://en.bitcoin.it/wiki/Block_size_limit_controversy First, most people want Bitcoin to scale such that more people can use it. This can be done directly on the blockchain by allowing more transactions to be recorded in each block. Or it could be done with '2nd layer' solutions that periodically resolve on the Bitcoin blockchain. Such solutions require some changes to the Bitcoin clients people operate; the current 'most popular' version of this is called Segregated Witness, aka SegWit. Right now, more people want to create transactions than can actually do so, thus a fee market has formed to get transactions included in blocks. This is why fees have increased. It's a debate that sounds like a technical detail, but in reality it goes straight to the core of what Bitcoin is and how it will work. There is the debate over what changes will be made, but there is also a debate about how this decision will be made. Some feel that all changes to the Bitcoin protocol should be made with strong consensus, a conservative approach that has worked alright up to this point. Some still hope that this can be done, but the deep ideological division that belies this debate makes that seem unlikely. The alternative view is that Bitcoin is designed to handle these disagreements naturally by hard fork. A hard fork is a split of the Bitcoin blockchain into different incompatible chains. In this case, it would be a split over the maximum permissible block size; one group would allow larger blocks, and another would refuse them. This would lead to a situation where miners choose which chain to mine on. Miners are incentivized by mining rewards (coinbase rewards), and thus have an economic incentive to mine on the chain they believe will have the greatest market value. This will likely result in a positive-feedback mechanism where one chain dominates the other; this has played out on the Ethereum chain where 'classic' ether is worth far less. A stable split is also possible, and thus there would be two versions of Bitcoin with different rules. Any coins generated or transacted pre-fork would be valid on both chains, but post-fork would commit to one chain or the other. As for the bigger blocks, it comes down to predicting how the network will behave with larger blocks. It would permit more transactions, without question. It would also increase the bandwidth and data storage requirements of full-node operators. Basically, it would be more expensive to operate the Bitcoin network (which is distinct from the cost to secure it, which is scheduled coinbase inflation and txn fees). It would also mean that miners that are closer to each other on the network (via latency and throughput) would have a competitive advantage as they would confirm each other's valid blocks more quickly, and thus there are concerns about miner centralization. Such centralization presents a point of failure for the network. Make no mistake; it is very difficult to predict what will happen with different protocol parameters. There's a lot of game theory that you can do to try to understand it. For instance, miners may mine larger blocks to include more transactions, and thus transaction fees, but risk slower propagation of their valid block through the network. In the case of valid blocks being found at the same moment, the one that propagates faster will 'win' and the other will be orphaned. Some argue that the risk of orphaned blocks is an effective limit to blocksize, and thus no blocksize limit is needed. It would also peg transaction fees to the marginal risk of a block being orphaned.

JohnJamesRambo 9y ago

The miners only process transactions that have higher and higher fees. This makes lower fee transactions take forever to be processed or never happen at all. Since bitcoin limits how many transactions that can occur in a set amount of time it creates this awful fee-based backlog. The self-serving and shortsighted bitcoin community has argued and bickered amongst itself so long about how to fix this that it may be too late now.

opportune 9y ago
Is this a conscious decision on behalf of the miners themselves, or is it a result of mining becoming increasingly more difficult?
- JohnJamesRambo 9y ago
  My understanding is that it is fueled by greed and desire for short term gains at the expense of bitcoin health in the long run. The people involved aren't the most admirable folk. For instance, this is the leader of the biggest mining company- https://twitter.com/jihanwu/status/731902686379933697?lang=en https://twitter.com/jihanwu/status/731902686379933697?lang=e... A good contrast is that Vitalik Buterin, one of the founders of Ethereum recently said the gas fees for Ethereum are too high (they were still quite low compared to bitcoin) and the miners voluntarily just lowered the gas fees, which determine the transaction costs. It seems to be a very different community running each currency.
- plokiju 9y ago
  the miners are running software that decides which transactions to include, and I'm sure the software has some logic where it will pick the highest-fee transactions when they can't include them all
- nas 9y ago
  The limit on transactions per second is a function of the block size, currently 1 MB. Based on what the miners say, they would be interested in increasing the block size. Understand that the miners like high fees but they like high bitcoin prices even more. The fees are only a fraction of the block reward. If the system becomes too expensive then the miners will lose a lot more than just some fees. The 1 MB limit is set by the bitcoin software. The software that most everyone runs is developed by a group called the "bitcoin core". That group has mostly been taken over by the company Blockstream (this is my opinion, others would argue the team is diverse and not controlled by any one company). Blockstream's business is based on off-chain transactions (i.e. the Lightning network). It is in Blockstream's interest to get a feature that enables Lighting into the Bitcoin software (SegWit). Miners have been refusing to upgrade. One theory is that SegWit will disable a special optimisation that one of the biggest miners uses (ASCIBoost). In any case, Bitcoin core team refuses to increase the block size and the miners have been refusing to enable SegWit. The SegWit upgrade is a good thing, IMHO, even though it seems like a pretty complicated feature. Having the ability to open "payment channels" and make cheap transactions off the main chain would be great. However, I feel that a block size increase to 2 MB or 4 MB is long overdue. I don't understand all the technology issues so maybe there is some really good reason not to do it. It is clear to me that Satoshi (founder of Bitcoin) and Gavin (previous leader of Bitcoin core group) felt that the block size could be scaled to keep fees low. Both software improvements and hardware/network improvements would progress quickly enough to scale with demand. The current core team does not think so and think off-chain transactions are the only way to scale now.

zachaller 9y ago

There are a few things that contribute to this bitcoin has a block size of 1MB and they only add new blocks every 10min. There are only so many transactions you can fit in that block size. The other thing is as the block reward gets half'ed miners will ask for more fee's as well as miners will mine blocks with higher fee's first. So as a way to combat some of the congestions people increase the amount of fee they are willing to pay to get included into a block faster.

plokiju 9y ago

Early on in bitcoin, a 1MB limit was added to the block size, which puts a cap on the number of transactions that can be included in each block. Now that bitcoin is more popular, there are more transactions then can fit in each block, which means miners will only include the transactions that include the highest fees. There are a number of ways to solve this (the easiest being expanding the block size), but the community is split on the best way forward, so the congestion is getting worse

marcell 9y ago

Bitcoin blockchain has a limit of 1MB of transactions in a block. This was set in 2013, when Satoshi put it in place. He didn't give much explanation for it, but it was probably to avoid a spam attack. He said it could be raised later: https://bitcointalk.org/index.php?topic=1347.msg15139#msg15139 https://bitcointalk.org/index.php?topic=1347.msg15139#msg151... There are arguments for and against increasing the blocksize. For: - Support more transactions per second - Lower fees for users Against: - Hardfork requires all full node operators to upgrade, or they could see incorrect balances - Lower fees mean that miners make less money Also, generally, there are some philosophical differences between the sides. The big-block side usually wants bitcoin to be more like a payment network, wherease the small-block side typically views it more as digital gold and store of value.

zby 9y ago
"Lower fees mean that miners make less money" - not really. There are two mechanisms: 1. The congestion would mean bigger fees 2. In bigger blocks there will be more transactions - so more fees in the block The most probably cancel each other. Actually the big miners seem to be in favour of the Bitcoin Unlimited big blocks. What they want to stop is SegWit which is needed for scaling bitcoin off chain with Lightning etc. There is a conspiracy theory about that - and it actually makes sense to me - which is that SegWit would eliminate ASICBoost (which is an optimization technique that is implemented in some ASIC miners). But there is also another narrative that Lightning would mean banking entering the Bitcoin community - and that is why it should be stopped. Bitcoin can never become a good payment processor - this would require many orders of magnitude bigger blocks (now bitcoin can process about 7 transactions per second, VISA can process 50K transactions per second). And while storage for bigger blocks grows linearly - the other algos have probably worse complexity.
Obi_Juan_Kenobi 9y ago
> This was set in 2013 Wrong date, it was July 2010 I believe.

drcode 9y ago

There's a discontinuity in transaction pricing caused by the fact that Bitcoiners are hitting a hard 1MB limit on the blockchain. It's kind of like the situation with airliners: If there are empty seats left, it's cheap to add another flier. However, once the seats are all taken, it gets extraordinarily costly to get another passenger on board, to the point that they have to violently evict someone to make a spot available.

Obi_Juan_Kenobi 9y ago

This is a reasonable start: https://en.bitcoin.it/wiki/Block_size_limit_controversy https://en.bitcoin.it/wiki/Block_size_limit_controversy First, most people want Bitcoin to scale such that more people can use it. This can be done directly on the blockchain by allowing more transactions to be recorded in each block. Or it could be done with '2nd layer' solutions that periodically resolve on the Bitcoin blockchain. Such solutions require some changes to the Bitcoin clients people operate; the current 'most popular' version of this is called Segregated Witness, aka SegWit. Right now, more people want to create transactions than can actually do so, thus a fee market has formed to get transactions included in blocks. This is why fees have increased. It's a debate that sounds like a technical detail, but in reality it goes straight to the core of what Bitcoin is and how it will work. There is the debate over what changes will be made, but there is also a debate about how this decision will be made. Some feel that all changes to the Bitcoin protocol should be made with strong consensus, a conservative approach that has worked alright up to this point. Some still hope that this can be done, but the deep ideological division that belies this debate makes that seem unlikely. The alternative view is that Bitcoin is designed to handle these disagreements naturally by hard fork. A hard fork is a split of the Bitcoin blockchain into different incompatible chains. In this case, it would be a split over the maximum permissible block size; one group would allow larger blocks, and another would refuse them. This would lead to a situation where miners choose which chain to mine on. Miners are incentivized by mining rewards (coinbase rewards), and thus have an economic incentive to mine on the chain they believe will have the greatest market value. This will likely result in a positive-feedback mechanism where one chain dominates the other; this has played out on the Ethereum chain where 'classic' ether is worth far less. A stable split is also possible, and thus there would be two versions of Bitcoin with different rules. Any coins generated or transacted pre-fork would be valid on both chains, but post-fork would commit to one chain or the other. As for the bigger blocks, it comes down to predicting how the network will behave with larger blocks. It would permit more transactions, without question. It would also increase the bandwidth and data storage requirements of full-node operators. Basically, it would be more expensive to operate the Bitcoin network (which is distinct from the cost to secure it, which is scheduled coinbase inflation and txn fees). It would also mean that miners that are closer to each other on the network (via latency and throughput) would have a competitive advantage as they would confirm each other's valid blocks more quickly, and thus there are concerns about miner centralization. Such centralization presents a point of failure for the network. Make no mistake; it is very difficult to predict what will happen with different protocol parameters. There's a lot of game theory that you can do to try to understand it. For instance, miners may mine larger blocks to include more transactions, and thus transaction fees, but risk slower propagation of their valid block through the network. In the case of valid blocks being found at the same moment, the one that propagates faster will 'win' and the other will be orphaned. Some argue that the risk of orphaned blocks is an effective limit to blocksize, and thus no blocksize limit is needed. It would also peg transaction fees to the marginal risk of a block being orphaned.