By Eli Haims, Product Manager

Today we’re launching Bitcoin transaction batching, a new feature that significantly reduces the load that Coinbase puts on the Bitcoin blockchain and may save users more than 50% on network fees.

Historically, every time a Coinbase customer sent bitcoin, we broadcasted a single on-chain transaction. Starting today, we will be bundling multiple sends into a single transaction — we anticipate that this will reduce our load on the Bitcoin network by more than 50%, and the network fees our customers pay will automatically be reduced by an equivalent amount when sending. This update requires no action from customers, who will immediately see reduced network fees. This release will introduce a small delay in a transaction being broadcast to the network, but will not impact the time it takes for transactions to be confirmed at the normal rate for customers.

Customers will find the network fee reduction in their transaction details

Why are we doing this?

A critical aspect of building an open financial system is to improve usability of Bitcoin’s open protocol. A major obstacle for Bitcoin usability is scalability, or the rate at which the network is capable of processing transactions.

Like traditional payment systems, all Bitcoin transactions are required to pay a network fee, or a processing fee. During periods of high activity on the network, Bitcoin users compete to have their transactions processed, outbidding each other via network transaction fees.

This has led to days when the median network fee for a single transaction was over $30. The size of this fee rendered Bitcoin impractical for low-value transactions. Currently, daily median network fees on the Bitcoin network are ~$0.30 for a transaction.

Supporting transaction batching is one way that Coinbase can help make Bitcoin more usable by lowering network fees overall and freeing up space on the blockchain. This enables the network to increase transaction throughput, and helps to increase scalability.

How does this work?

The Bitcoin network processes transactions by packaging them into blocks and adding these blocks to the end of the blockchain. Each of these blocks has a fixed capacity (in bytes), and one is created every 10 minutes, on average. It is this limited supply of block space, and increasing demand for transaction processing, that leads to high fees.

A single transaction that fulfills multiple user send requests occupies less space in each block than each being processed individually. Put another way: the whole is less than the sum of the parts when it comes to Bitcoin transactions.