According to a recent Galaxy Digital study, bitcoin transaction fees are at an all-time low.
Transfers between wallets and exchanges are now the most inexpensive they’ve ever been, according to the same research.
This is good news for Bitcoin users, as it shows that cryptocurrency is becoming more efficient and cheaper to use.
Bitcoin fees are thrives on the size of the transaction in bytes, so lower fees mean that Bitcoin is being used more efficiently.
The report from Galaxy Digital notes that this efficiency is due to a combination of SegWit adoption and the rise of Bitcoin off-chain solutions like the Lightning Network.
SegWit, or Segregated Witness, is a Bitcoin protocol upgrade that helps improve Bitcoin scalability by increasing transaction capacity.
This year, the average transaction fee dropped to 0.00004541 Bitcoin ($2.06), and the median was 0.00001292 Bitcoin ($0.59)
Which is lower than it has been since over a decade ago, according to Galaxy’s data.
According to Galaxy Digital’s head of research, this is because Bitcoin’s capacity has expanded as a result of Segwit adoption and the growing usage of Lightning Network across the market.
These factors, alongside a decline in miners’ sales, have resulted in significant fee savings.
Fees Reduce As The Number Of Transactions In A Block Increases
The greater number of transactions that can be squeezed into a block – which would be aided by batching blocks, Lighting, and Segwit – the less expensive your transaction will be.
The number of transactions that one can add in each block increases as more of them is, resulting in a reduction in fee pressure.
According to Glassnode, the surge in Segwit usage is direct proportion to a decline in costs.
From Glassnode’s research report, Segwit usage has risen dramatically in the last year.
The current decline in transaction fees is a result of a combination of two factors: an increase in Bitcoin’s price and a decrease in the number of transactions sent.
When Bitcoin’s price increases, users tend to hold onto their Bitcoin rather than spend it, leading to fewer transactions.
The market’s low fees have also been aided by a lack of buying pressure, as seen after a reduction in retail purchasing.
In May, there was a significant sell-off, which led to fees beginning to fall at an accelerated rate.
Although the price of Bitcoin has dropped by a third, some believe that it may be an indication of the beginning of a bear market.
However, fee cuts and long-term investors continuing to invest in the market indicate a positive long-term situation for the ecosystem.
Furthermore, the massive reduction in fees and consistent upgrades to improve systems in the industry, in general.
Will hold more appeal to new investors looking to step into the digital currency space for the first time.
The transaction fee reduction will most likely applies to other cryptocurrencies as well.
The Lightning Network and other protocols will be implemented across the market, which will result in a greater reduction in fees.
It’s critical for the market’s success that transactions get add up as frequently as possible.
Not just because it benefits investors and traders by lowering costs but also because it solves a major scaling problem.
As you add more blocks in a transaction, network performance improves, and traffic decreases.
Therefore, with new investors, low fees are critical if Bitcoin wants to continue its expansion trend.
While it’s less essential for long-term HODLers who don’t trade their cryptocurrency frequently, any protocol upgrades to the network may still be a success.
This reduction in transaction fees may be an incentive for new entrants to come on board.