State of Blockchains: Bitcoin Fees

Transaction fees make the bitcoin blockchain go round.

The miners are compensated for their efforts, not only through inflationary block rewards, but also through fees charged to users for adding their transaction to blocks.

While fees on average make up about 4% of the total miner revenue per day, with the lion's share coming from block rewards, sometimes economic shocks cause those fees to rise.

The fees are the prices charged for a transaction to get into the limited space of a 1 MB block that occurs every 10 minutes.

Miners will usually include the transaction with the highest fees and work their way down as capacity dwindles to the lower fee transactions.

All this demand caused the mempool to become clogged which caused transaction fees to rise to about $30-$60 and confirmation times to expand to a week.

Bitcoin now sits sub-$4k and the demand is returning to parity with that of Q4'17. Astonishingly, fees have remained low.

Segwit is a software upgrade that allows transaction data to be minimized so a user can fit more transactions in a given block.

Only 10% of transactions were using Segwit during the fee crisis of Q4'17 while more than 35% are now using it.

Jimmy Song, blockchain programmer, simplifies it as "Segwit transactions [result] in a block size of around 2MB". Thus fees and confirmation times were reduced through the solution of an effective block size increase.