Bitcoin Transaction Fees Rise to 28-Month High as Hashrate Drops Amid Price Rally

The cost of doing transactions on bitcoin is surging at a time the network is suffering its worst congestion in nearly three years.

AccessTimeIconOct 29, 2020 at 4:34 p.m. UTC
Updated Sep 14, 2021 at 10:25 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

The cost of doing transactions on bitcoin is surging while the network suffers its worst congestion in nearly three years.

As of Wednesday, the mean fee per transaction, or the average transaction cost, was 0.00086764 BTC, the highest since June 2018, according to data source Glassnode. In dollar terms, the average transaction fee was $11.66. 

Bitcoin mean transaction fees
Bitcoin mean transaction fees

Average fees in bitcoin terms have increased by 573% in the past 12 days alongside the cryptocurrency’s price rally from $11,200 to $13,800.  

"Bitcoin mempool [memory pool] is back in focus in the wake of rising transaction volumes, causing congestion in the network and consequently driving fees higher," Denis Vinokourov, head of research at the London-based prime brokerage Bequant, told CoinDesk. 

Mempool is the collection of unconfirmed transactions. When bitcoin transactions are executed, they are first sent to the mempool, where they wait for approval by miners. Bitcoin miners can process only 1 megabyte (MB) worth of transactions per block mined roughly every 10 minutes. 

When the blockchain experiences a rise in traffic, it causes delays and a backlog of transactions. As demand outstrips supply, miners increase their revenue by prioritizing transactions with higher fees. That, in turn, forces other users to offer higher fees to avoid long waiting times. 

Network congestion is usually seen during price rallies. As noted earlier, bitcoin has chalked out a significant rise over the past 12 days. During that time frame, network congestion, as measured by the total number of unconfirmed transactions in the mempool, worsened by 1,800%.

Bitcoin: Total number of unconfirmed transactions
Bitcoin: Total number of unconfirmed transactions

As of Tuesday, there were 121,340 unconfirmed transactions in the mempool with a total block size of 66.8 MB. According to data source blockchain.com, that's the highest level since the bull market frenzy of December 2018.

Hashrate drop contributes to congestion

The recent slide in bitcoin's hashrate looks to have played a big role in causing network congestion along with a general price-driven pickup in activity. In other words, the mining power dedicated to approving transactions and mining blocks has gone down amid the price rally, boosting waiting times and network congestion. 

Bitcoin's hashrate
Bitcoin's hashrate

The seven-day moving average of bitcoin's hashrate has declined from 146 exahashes per second (EH/s) to 120 EH/s.

In other words, the mining power available to approving transactions and mining blocks has gone down amid the price rally, boosting waiting times and network congestion.

With the end of the rainy season in China's Sichuan province, a mining hub, some miners may be shifting to other areas with cheap hydroelectricity sources, causing a drop in the hashrate.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.