- A major power outage in China’s Xinjiang province led to the drop in Bitcoin’s hash rate last week.
- The massive decline in Bitcoin’s hash rate has benefitted miners but costs users a new high in transaction fees when using the network.
- Bitcoin’s mining difficulty is expected to be adjusted in early May, leading to adjusted fees.
Bitcoin transaction fees have reached an all-time high amid a massive hash rate decline on the network.
Bitcoin hash rate’s effect on transactions
The latest surge in Bitcoin transaction fees come in at a time when the Bitcoin network witnessed a major drop in hash rate. Over the weekend, amid the Bitcoin price plunge, BTC saw the largest daily drop in the network’s hash rate since late 2017.
The massive decline in Bitcoin’s hash rate could be attributed to power outages in China’s major BTC mining farms in Xinjiang. According to Dovey Wan, founding partner at Primitive Crypto, the Xinjiang and Sichuan provinces in China collectively comprise over 50% of the overall Bitcoin hashrate.
When a large proportion of the hash rate shuts off, blocks that are mined on the network slow down as a result. Few transactions can be confirmed on the blockchain, leaving Bitcoin’s mempool – where all valid transactions wait to be confirmed – filled with pending transactions.
Miners select the highest-paying fees attached to the transaction and decide to include them in the block that they mine, giving them a direct economic incentive. With the sluggish hash rate witnessed over the weekend, total miner revenue has also reached an all-time high.
Bitcoin total miner revenue
Since block space on the BTC network is scarce, as more people use the Bitcoin network, it could typically lead to higher transaction fees. In this case, due to the lagging rate of blocks mined, it could lead to fewer transactions, leading to higher transaction fees.
More miners would be incentivized to participate and join in the network, increasing the hash rate in the future, enhancing network security.
Despite the number of miners joining or leaving the network, mining difficulty would be adjusted either upward or downward, proportional to the rate of blocks mined compared to the average 10-minute target after a 2,016 block period.
Bitcoin’s mining difficulty is expected to be adjusted in early May, according to the current rate. To correct for the drop in hash rate, Bitcoin is due for a 30% adjustment. However, Bitcoin can only adjust its difficulty by 25%, implying more than one downward adjustment ahead.
Bitcoin transaction fees top 2017 bull run levels
On top of Bitcoin’s hash rate drop, Thomas Heller, the Chief Business Officer at Compass Mining, suggested that a few other factors also led to the increased transaction fees, citing a combination of ASIC shortages, huge price increases of Bitcoin outpacing difficulty.
The average transaction cost of sending Bitcoin has reached nearly $60, according to BitInfoCharts data.
Bitcoin average transaction fee
Compared to the 2017 bull run, Bitcoin transaction fees hit a high of roughly $55. The Bitcoin transaction fee has surged by over 300% since April 11, which was around $15.
Despite the Bitcoin price decline over the weekend, new addresses and daily active addresses have seen an uptick during the same time.
Bitcoin daily active addresses
High fees on the network could lead to more development of the Lightning Network – a scaling solution that acts as a second-layer solution for Bitcoin. The solution could potentially speed up transactions compared to the cryptocurrency’s main network. However, the majority of crypto exchanges currently do not support the solution. Despite the network’s initial intent of being a new payment gateway, Bitcoin continues to own the narrative as a store of value.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
Crypto Today: ADA, AVAX, TON in profit as BTC stalls at $100K
Altcoin market updates: ADA, AVAX, TON emerge as top gainers While BTC has stagnated on Monday, traders are redirecting capital toward mid-cap assets, driving the likes of Cardano (ADA), Avalanche (AVAX) and Toncoin (TON) above key resistance levels.
Ripple's XRP aims for $1.96 as WisdomTree registers for an XRP ETF in the US
Toncoin Price Forecast: Crypto whales spotted buying $30M TON in 4 days, amid Gensler’s exit
Toncoin price opened trading at $6.2 on Monday, up 27% since Gary Gensler's exit confirmation on November 21. On-chain data trends suggest a $7 breakout could follow as whale investors have scaled up demand for TON considerably over the last 5 days.
MicroStrategy set to push Bitcoin to new highs after 55,500 BTC acquisition, should investors be concerned?
MicroStrategy revealed on Monday that it made another heavy Bitcoin purchase, acquiring 55,500 BTC for $5.4 billion at an average rate of $97,862 per coin.
Bitcoin: Rally expected to continue as BTC nears $100K
Bitcoin (BTC) reached a new all-time high of $99,419, just inches away from the $100K milestone and has rallied over 9% so far this week. This bullish momentum was supported by the rising Bitcoin spot Exchange Traded Funds (ETF), which accounted for over $2.8 billion inflow until Thursday. BlackRock and Grayscale’s recent launch of the Bitcoin ETF options also fueled the rally this week.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.