Bitcoin Fees Are Skyrocketing (arstechnica.com)

An anonymous reader quotes a report from Ars Technica: The cost to complete a Bitcoin transaction has skyrocketed in recent days. A week ago, it cost around $6 on average to get a transaction accepted by the Bitcoin network. The average fee soared to $26 on Friday and was still almost $20 on Sunday. The reason is simple: until recently, the Bitcoin network had a hard-coded 1 megabyte limit on the size of blocks on the blockchain, Bitcoin's shared transaction ledger. With a typical transaction size of around 500 bytes, the average block had fewer than 2,000 transactions. And with a block being generated once every 10 minutes, that works out to around 3.3 transactions per second. A September upgrade called segregated witness allowed the cryptographic signatures associated with each transaction to be stored separately from the rest of the transaction. Under this scheme, the signatures no longer counted against the 1 megabyte blocksize limit, which should have roughly doubled the network's capacity. But only a small minority of transactions have taken advantage of this option so far, so the network's average throughput has stayed below 2,500 transactions per block -- around four transactions per second.

Comments

Re:Unclear Story

[Jonathan C. Patschke]

It doesn't seem accurate, I mean, how can an exchage demand real currency when dealing with the fake currency they are promoting.

Bitcoin fees are expressed as an average amount in BTC per kilobyte. A given transaction takes a particular amount of space in the block (owing to how many previous transactions are needed to express the exact amount to send plus the address to send the "change" to), and that transaction has a fee attached. The fee is a "bid" to place the transaction on the network.

Likely the rate is really high because the exchanges are expecting a major crash in bitcoin but don't want to admit it and instead charging for bitcoin exchanges at a rate that reflects a much lower bitcoin for real money exchange.

A given node will take the transactions it knows about, and pack the ones with the highest fees into the current block until that block is full. Then the block is mined. If that node wins the mining operation, those transactions become part of the chain. If some other node wins, the transactions it knows about become part of the chain (which will likely have a lot of commonality with the transactions in the first node's block). A higher fee attached to the transaction increases the chances that it'll be processed quickly. Below the average amount, you've got queueing working against you, and your transaction will likely expire before it becomes part of the chain.

If a transaction is totally within one exchange, the fee may be nominal or zero because it's done entirely off the blockchain, but that's not the rising fees the article discusses. This is purely a congestion effect.

Scaling to the real world?

[ColaMan]

I don't understand how Bitcoin and it's blockchain arrangement is ever going to be scaleable.

Currently we're running at a global rate of four transactions a second. Four. Just the everyday transactions at my local shopping centre would run above that rate.

How is this whole "ubiquitous Bitcoin economy" thing supposed to work again?

Re:Scaling to the real world?

[christophercole]

Agreed -- Bitcoin won't scale. It's already proving to be a very poor way to transfer small amounts of money. For example, last week, I sent $15 worth of BTC from one of my wallets to another. The default transaction fee was $7.50! Before sending, I overrode the suggested transaction fee and set it to the minimum amount, which was about about $1.50 -- that's effectively a 10% fee to move a small amount of money. I knew that opting for a lower transaction fee would result in a longer wait for my transfer to occur, but I was not in a hurry. I wanted to see what happened. Well, here I am 5 days later, and although the $15 is deducted from by source wallet, it has yet to show up in my destination wallet. And as long as there are thousands of other transactions around the globe paying higher fees, my money will forever be stuck in the ether. Bitcoin has proven to be: non-scalable, expensive, and unreliable.