Despite Criticisms It Can't, Bitcoin Is ScalingBy Andy Hao
Bitcoin has long been criticized for not being able to scale. For years now, the primary argument against Bitcoin scaling says that whenever people start to regain interest in the Bitcoin network, transaction fees will skyrocket and processing delays will become common.
Those criticisms aren’t unfounded: that is exactly what happened in 2017 and in 2018. But the latest wave of interest in Bitcoin doesn’t look exactly like the last. For one, retail investors haven’t entered the crypto space in flocks yet, perhaps recalling the sting of the 2017/2018 crypto bubble popping. Google searches of Bitcoin still aren’t near the frequency of late 2017 either.
But there’s another difference: transaction fees are the lowest they’ve ever been when Bitcoin is trading above $10,000. On August 4th, the median Bitcoin transaction fee was $0.15 per transaction. Typically the fees associated with Bitcoin transactions follow prices. With higher prices, higher fees tend to follow.
This is a peculiar situation. Never before in Bitcoin history have we seen fees as low as $0.15 when prices were above $10,000. The next closest day of transaction fees was February 21, 2018, when Bitcoin transaction fees were $0.19 during one of the final days above $10,000 in the 2017/2018 bubble. Most days with Bitcoin prices above $10,000 had transaction fees well above $1 per transaction — sometimes as high as $30.
The most obvious answer for why this is happening comes down to increasingly efficient transactions. Between growing SegWit adoption, growing off-chain volume on apps like Square’s Cash App and Coinbase, and growing Lightning Network usage this year, the Bitcoin community has already uncovered a number of ways to lower the costs of making on-chain transactions.
This is by no means the end of Bitcoin’s scaling challenge, but it’s clearly a step in the right direction.