Bitcoin (BTC) has been making headlines with its skyrocketing prices, but what goes unnoticed is the surging cost of moving it. On-chain data reveals that the price for Bitcoin block space has reached an all-time high, largely fueled by the overwhelming demand created by Ordinals transactions. Anita Posch, the founder of Bitcoin for Fairness, shed light on this record cost, showcasing how transactions have surpassed 350 satoshis per vByte (sat/vB). This situation poses a significant challenge for users as it limits the feasibility of smaller on-chain payments.
With Bitcoin transactions experiencing such substantial costs, the weight of Bitcoin’s mempool, where unconfirmed transactions are stored, has surged to a new high of 390 vMegabytes (vMB). This remarkable congestion within the blockchain results in longer settlement times and more expensive transactions. As a result, it becomes increasingly impractical to use Bitcoin for smaller on-chain payments. Posch expressed her concerns by stating, “I stop onboarding users to on-chain in Ghana, South Africa, etc. at these fees,” highlighting how transactions at such costs equate to 10% of the average income in many countries.
The fees associated with Bitcoin have surged on multiple occasions this year due to the rising popularity of Ordinals transactions. This protocol enables the issuance of NFTs and tokens on the Bitcoin blockchain. Unlike other blockchains, Bitcoin NFTs store image data directly on-chain, resulting in larger and costlier transactions. Dune Analytics reveals that Ordinals fees paid by users amounted to $1.9 million on Tuesday and an additional $854,000 on Wednesday. To date, these transactions have accrued a staggering $148.4 million in fees.
Bitcoin Core developer Luke Dashjr believes that Ordinals transactions can be considered a form of network spam. In response to this, Dashjr launched the OCEAN Bitcoin mining pool, which filters out Ordinals transactions to prioritize real transactions. This approach allows miners to contribute toward processing blocks full of legitimate transactions.
Ethereum, another popular cryptocurrency, is also grappling with rising transaction costs. Ever since the introduction of Buterin Cards NFTs, Ethereum gas fees have nearly doubled, reaching their highest level since May of this year. Interestingly, Ordinals transactions enabled Bitcoin to rival Ethereum’s transaction fees last month, generating approximately $52.6 million in fees between November 18th and November 25th, compared to Ethereum’s $61.5 million.
The increased transaction fees are having a notable impact on Bitcoin mining pools. According to HashRate Index, between 25% and 30% of mining pool rewards over the past three days were derived from transaction fees alone, surpassing the standard 6.25 BTC block subsidy that miners receive. However, the upcoming Bitcoin “halving” in April will cut this subsidy in half, further emphasizing the need to find sustainable solutions to mitigate the impact of rising transaction costs.
The surging cost of Bitcoin transactions raises significant concerns for users worldwide. The increased fees, driven by Ordinals transactions and network congestion, hinder the practicality of smaller on-chain payments. Both Bitcoin and Ethereum face challenges as they grapple with their respective transaction costs. As the cryptocurrency industry continues to evolve, it is crucial for developers, miners, and users to collaborate in finding innovative solutions to ensure the scalability and accessibility of digital currencies.