I’m going to pick on my colleagues over at Bloomberg Tech and their allegations that Bitcoin is suffering some sort of backlog. You guys are wrong! Bitcoin is doing just fine.

Complaining about a Bitcoin transaction backlog is like complaining that Ebay has a backlog because 90 people bid on a Honus Wagner baseball card and only one person got to win. I could bid a penny on Honus Wagner all day long, and still not get a card. That’s not a backlog; that’s just a crappy offer price.

See, a sad fact of capitalism is that goods and services cost money. Processing a bitcoin transaction is a service that miners perform in exchange for money, which they need to pay their electricity bills. Did bitcoin users presume that the network is a public service run by benevolent cryptoanarchists?

Bitcoin transactions are priced by size, like, BTC/kB. Transactions vary in size because you can combine multiple inputs and outputs and add programmable instructions. But a one-input-one-output transaction is about 192 bytes, and a reasonable fee for that transaction might be about 0.0002 BTC, or 25 cents. The fee is the same whether the transaction value is a million dollars or a nickel.

So here we have Roger Ver complaining that he paid $78 for his bitcoin transaction. Right, the transaction contained 416 inputs, so it was effectively 416 transactions squashed into one. 18.75 cents per transaction is not bad! And this is irrelevant, but the total transaction value was 32.5 bitcoin, or about $39,000. $78 is effectively a 0.2% transaction fee!

https://t.co/6EeRmpwLyF just paid $78 in TX fees for a single Bitcoin transaction. https://t.co/FVq16Vzqq9 pic.twitter.com/mOwHnaFPWP — Roger Ver (@rogerkver) January 5, 2017

Transaction fees have gone up recently, but overall transaction costs have stayed the same. Decreased, even. The cost of a transaction is what miners receive for including a transaction in a block. That’s the fixed block reward plus a fee from the user. The block reward is the creation of new bitcoins, which is effectively inflation, so people don’t really think about it, but it’s still a cost. Block rewards decrease by 50% every four years, and the last decrease was last July, so transaction fees had to increase to compensate. The good news is that the inflation rate has gone down.

The bigger issue is that people don’t understand how to calculate bitcoin transaction fees, so they submit cheapskate transactions and get all confused when miners don’t want to include them. Here is a pretty good tool for estimating transaction fees and expected wait time. A lot of the wallet software out there sucks and doesn’t do this for their users. Bitcoin could stand to be more user-friendly.

Finally, transaction fees are denominated in BTC, but people whine about them in dollars. Even if the transaction fees haven’t gone up much in terms of bitcoin, the dollar-denominated price of bitcoin has increased by a lot, so the transaction fees look a lot higher these days when considered in dollars. But it’s not Bitcoin’s fault that your stupid fiat currency can’t hold its value.

See Also:

Someone Wants to Stick a Fork in Bitcoin –BloombergView

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