Bitcoin transaction fees rose to an all-time high on Saturday, April 20, 2024, reaching an astounding $128.45 USD before dropping back down to around $35 USD on Sunday.
Transaction fees — also called network fees — are small amounts of money paid to miners to include records of transactions in the blockchain. The fees provide an incentive that helps to sustain the network.
Transaction fees are one component of the total reward for miners; the other major incentive is the reward for creating a new block, which requires solving a computationally intensive math problem.
This weekend, Bitcoin underwent halving, a built-in feature that cut rewards for mining by 50%. Halving occurs approximately every four years; read more about Bitcoin halving day here.
Why are Bitcoin transaction fees surging?
The sudden rise of transaction fees isn’t solely due to halving. Any reduction in mining rewards will certainly affect a cryptocurrency network, but transaction fees also jump during periods of network congestion.
That was the case this week: The Runes Protocol token standard was launched at block 840,000 — the same block that triggered halving — and created a rush of activity on the network.
The Runes Protocol enables users to create “inscriptions” on the Bitcoin blockchain to easily create tokens. Essentially, Runes adds functionality that already exists on the Ethereum network, addressing one of Ethereum’s primary competitive advantages as a currency.
Many users immediately introduced their own tokens (or meme coins) onto the Bitcoin network. Traffic spiked — and so did transaction fees.
It costs $135 to make a bitcoin transaction right now because the network is being spammed with meme coins pic.twitter.com/Zd1c1MutQ8
— Crypto Tea (@CryptoTea_) April 20, 2024
That was by design: The Bitcoin community had hoped that the introduction of the Runes standard would help to offset the reduction in mining rewards caused by halving. But while Rune has had an enormous effect on markets, it may not have generated much long-term value.
Related: Man Who Lost $191 Million in Bitcoin Wants to Use a Robot Dog to Find It
This isn’t the first time that Bitcoin transaction fees have skyrocketed.
For seasoned Bitcoin veterans, this isn’t new territory. In 2017, average transaction fees rose to about $60 USD, more than twice their current level ($24.99 USD as of April 22, 2024).
Even an average fee of $20 USD may have crypto traders questioning BTC’s future. Part of the purpose of cryptocurrency is to — well, replace traditional currency. If per-transaction fees are excessively high, people simply won’t use Bitcoin (or any other crypto with a high network fee).
However, the fact that transaction fees have already plummeted should be encouraging to traders. Eventually, miners will have to rely on transaction fees alone — the rewards for successful mining will continue to diminish with each halving. As long as transaction fees are reasonable, BTC has a future.
With that said, the strength of the network will be tested over the next few weeks. Total rewards as measured by hashprice index dropped dramatically post-halving, and they’re unlikely to fully recover.
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