Bitcoin Transaction Fees Rise to 28-Month High as Hashrate Drops Amid Price Rally

Oct 29, 2020 at 16:34 UTCUpdated Oct 29, 2020 at 17:16 UTC.The cost of doing transactions on bitcoin is surging while the network suffers its worst congestion in nearly three years.

As of Wednesday, the mean fee per transaction, or the average transaction cost, was 0.00086764 BTC, the highest since June 2018, according to data source Glassnode.

In dollar terms, the average transaction fee was $11.66.Average fees in bitcoin terms have increased by 573% in the past 12 days alongside the cryptocurrency's price rally from $11,200 to $13,800.

"Bitcoin mempool is back in focus in the wake of rising transaction volumes, causing congestion in the network and consequently driving fees higher," Denis Vinokourov, head of research at the London-based prime brokerage Bequant, told CoinDesk.

When bitcoin transactions are executed, they are first sent to the mempool, where they wait for approval by miners.

Bitcoin miners can process only 1 megabyte worth of transactions per block mined roughly every 10 minutes.

When the blockchain experiences a rise in traffic, it causes delays and a backlog of transactions.

As demand outstrips supply, miners increase their revenue by prioritizing transactions with higher fees.

In other words, the mining power dedicated to approving transactions and mining blocks has gone down amid the price rally, boosting waiting times and network congestion.

The seven-day moving average of bitcoin's hashrate has declined from 146 exahashes per second to 120 EH/s.In other words, the mining power available to approving transactions and mining blocks has gone down amid the price rally, boosting waiting times and network congestion.