Steve Gerbino

Fees are killing Web3 — not because they’re expensive (many blockchains and layer-2s boast fees as low as fractions of a cent), but because their very existence creates friction for users.



Fees don’t just cost money — they cost usability. Users are blocked from interacting onchain unless they hold a given blockchain’s native token. Want to use Ethereum? You’ll need ETH. On Solana? You’ll need SOL. Every network has its own currency.



Before new adopters can engage with anything — be it a token transaction, an NFT mint or a decentralized app — they must navigate the process of obtaining and securely storing the proper native gas asset.



For seasoned crypto enthusiasts, this might feel like second nature. You, of course, are a tech savant. You’re reading a crypto publication and you probably learned how to go to an exchange, share your bank details, obtain a token, store it on a hardware wallet, connect to MetaMask, exchange it for another token that you’ll use to power your transaction…and so on ad nauseam.



Read more: <a href="https://blockworks.co/news/empire-newsletter-mass-adoption-as-priority">Is mass adoption still crypto’s most important goal?</a>



And this is all fine if you’re using a blockchain for DeFi (for example). You don’t mind the learning curve if there’s a clear financial incentive.



But…for the next billion users? Do we really expect a billion Facebook users to jump into this tangle of counterintuitive technobabble and make it work? No. It’s not going to happen. The only way for our industry to move beyond the “early adopters” phase and start onboarding the “early majority” is to eliminate these barriers. We need to make this process as intuitive and simple as using the internet we’re looking to replace.



And that means no more fees. Ever. Period.



Looking back, fees served several critical functions in blockchain&#8217;s early days. They acted as a deterrent to spam by requiring a small cost for each transaction, effectively discouraging malicious actors from overloading their respective networks with meaningless activity.



Read more from our opinion section: <a href="https://blockworks.co/news/slow-defi-infrastructure-curbs-mass-adoption">DeFi’s slow infrastructure is holding back mass adoption</a>



At the same time, fees provided miners with financial incentives to validate and secure transactions, ensuring the network’s integrity and sustainability, especially as block rewards decreased over time. Fees also allowed users to prioritize transactions during periods of high demand.



This framework was groundbreaking in its time, but that was nearly 16 years ago. With advances in blockchain technology and shifting user expectations, isn’t it time to rethink this outdated approach and explore what’s next?



To start with, we need to shift focus onto building apps that feel seamless and intuitive for users. Imagine a platform where users can engage freely — minting NFTs, sharing content or transacting — without ever needing to think about gas fees.



What if apps operated on an entirely different financial model — one where developers could delegate the ability to transact to users, entirely eliminating fees and the need for tokens?



We’ve seen attempts to address this before; for instance, protocols that claim to be “feeless” by covering fees on behalf of users in a bid to win their loyalty. But such models are unsustainable. They depend on temporary funding or token incentives that distort the market, create reliance on artificial subsidies and inevitably deplete with time.



Rather, I&#8217;m talking about a completely free-to-use model that doesn’t <a href="https://blockworks.co/news/the-future-of-web3-needs-zero-gas-fees">cost anything at all</a>.



There are a variety of ways a truly feeless blockchain network could be accomplished. One approach involves allocating network resources to users, which are consumed during transactions and automatically regenerate over time. Hardcoding this directly into the network would eliminate the need for users to pay fees directly while ensuring the network remains secure and efficient.



Or perhaps more developers could focus on alternative consensus mechanisms, such as directed acyclic graph (DAG) structures, where users validate each other’s transactions without relying on miners or traditional fees.



Read more: <a href="https://blockworks.co/news/ethereum-consensus-beam-chain">Rethinking Ethereum consensus with Beam Chain</a>



Regardless of the path taken to get there, our end goal should be an ecosystem where developers can build apps that look and feel just like the ones the uninitiated use every day — intuitive, seamless and free of unnecessary friction.



Web3 was never supposed to change the world for a few million crypto enthusiasts. It was supposed to make digital life better for everyone. But instead of tackling the root of Web3’s dysfunction, successive protocols have doubled down on the fallacious assumption that fees are an unavoidable necessity.



While these challenges continue to hinder mainstream adoption for now, the tides appear to be changing. And I&#8217;m pretty sure that in a few years, the idea of paying to use a blockchain will seem as antiquated as the landline.



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Unless Web3 changes, the ‘next billion users’ are never coming

Sara Drakeley

Let’s cut to the chase — the intricate world of international payments is a complete mess. With lengthy processing times, high transaction fees and unpredictable exchange rates, challenges abound for individuals and businesses.&nbsp;



These hurdles in the traditional financial system harshly impacted me and my family during a critical time of need. In 2020, after the destruction caused by Typhoon Goni, the urgency of sending money to my family living in the Philippines became a stark reality.&nbsp;



And the traditional method that I had to resort to took days; each moment of delay carried potentially dangerous consequences. What made the situation worse was the fee attached to the transaction. Instead of the whole sum going towards helping the village purchase essential resources and supplies, $40 went into the pockets of the processor.



Then, to pick up the payment, my family had to navigate flood-damaged terrain, fearing robbery due to the sizable amount of fiat they were now carrying. In a digital age, the technology for secure transactions eluded them. Ironic, isn’t it?



After COVID-19, our world is undeniably more globally connected than it has ever been, and we are seeing a surge in cross-border transactions for goods, services, remittance support and the gig economy. We need a payment infrastructure that supports these growing needs. Blockchain technology became the forerunner solution to revolutionize these payments, reducing inefficiencies, offering settlements in real-time and lowering transaction costs.



After digging into the technology, I was determined to help its development. Creating a simple solution that would have helped my family during a personal crisis became my passion: leveraging cryptographic technology to solve real-world problems for real people.&nbsp;



The elephant in the room, however, is the glaring lack of privacy in both traditional systems and blockchains.&nbsp;



<h2 class="wp-block-heading">The fire we’re playing with</h2>



Despite the potential of the technology to transform this field, we have yet to find a method of value transfer that achieves the delicate balance between transparency for compliance and privacy for individual protection.



For businesses, the public nature exposes strategies, negotiations and potentially sensitive financial information to competitors and the broader public. For individuals, it can be downright dangerous.



Most existing &#8220;trustless&#8221; blockchain solutions sacrifice privacy entirely, raising concerns about the implications of successful blockchain payments where anyone can scrutinize the amounts and timing of transactions.



This means that if you pay a freelancer in USDC, you can see how much they make for any other job, or if you buy a coffee with bitcoin, that interaction with a public blockchain means your real-time location is broadcasted not just to your friends, but to anyone anywhere in the world.



On the other hand, transparency in financial systems can be a good thing. It helps dissuade bad actors from activities like ransoms or funding criminal endeavors. We don’t want financial ecosystems that make it easy to hide malicious activity.



While blockchains offer streamlined solutions for use cases like remittances, the exposure of transaction details introduces risks to the senders and recipients, posing threats in both cyber and physical realms.&nbsp;



<h2 class="wp-block-heading">Your digital human rights</h2>



As technology progresses, there’s an overwhelming focus on safety measures like anti-terrorist financing protections. While this work is absolutely critical, we’ve overlooked in this pursuit a fundamental digital life principle: Privacy is a human right, not a “human option.” It protects people from unwarranted interference, identity theft and even one’s own physical safety.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/old-money-doesnt-ruin-the-cypherpunk-dream">Old money doesn’t ruin the cypherpunk dream</a>



Technology itself exists to prevent bad actors while providing privacy to everyday people. It’s a false dichotomy to assume “privacy” is a dirty word. A wise man said, “<a href="https://moxie.org/2013/06/12/we-should-all-have-something-to-hide.html">we should all have something to hide</a>.” A world without privacy is a world without progress.&nbsp;



Financial transactions, regardless of their origin or method, should be private from prying eyes as long as they are compliant. Many blockchain technologies were designed with transparency in mind, which presents significant challenges. While blockchain is key to secure financial transactions, it must evolve to protect users’ privacy effectively.&nbsp;



<h2 class="wp-block-heading">The roadmap to international financial privacy</h2>



So, what’s next? We need to progress with the global economy, not against it. Payment systems must evolve with global economic trends — a harmonious blend of innovation and regulation, where privacy and efficiency coexist.&nbsp;



With every harmony, there are checks and balances. Compliance plays a significant role in balancing a customer’s right to privacy and adhering to regulatory requirements. Innovative technologies coming into existence that check both boxes — protecting against potentially malicious transactions along with customers’ personal information and identities — are necessary to solve the problem.&nbsp;



As the world becomes more interconnected, the demand for privacy increases. And if we want blockchain to succeed in cross-border payments, we have to adopt a framework that not only meets today’s demands, but is also prepared for tomorrow’s challenges. You shouldn&#8217;t have to choose between speed and security, low cost and privacy.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Sara Drakeley is the CEO of Sentz, a cryptocurrency company that she joined as the third engineering hire in August 2018. With a diverse background spanning animation, finance, and aerospace, Sara found her passion in the booming world of cryptocurrency in the boom of 2017. Her expertise in procedural geometry and her desire to impact people&#8217;s lives led her to Sentz, where she played a key role in implementing SGX attestation procedures, contributing to consensus protocol development, building the company’s initial infrastructure, and the development of MobileCoin Fog, enabling secure mobile transactions without exposing private keys. 

Previously, as Sentz’s CTO, she led the company’s research branch, exploring smart contracts, zero-knowledge proofs, and ways to enhance the protocol. Prior to joining the company, Sara worked for household names such as SpaceX, Engineer Gate, Walt Disney Animation Studios, and was a researcher at MIT Media Lab. She holds a dual degree from Massachusetts Institute of Technology in Mathematics with Computer Science and Comparative Media Studies. Sara is based in San Francisco, California.</div>


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International payments are a complete mess

David Canellis

Crypto is stuck on a forever problem: Blockchains are too expensive when lots of people want to use them at the same time.&nbsp;



Except, it doesn’t have to be that way. Blockchains can be easily scaled with some old-fashioned cognitive reframing.



The fees aren’t out of control — it’s just price discovery.&nbsp;



Inscriptions are some of the purest forms of implied digital scarcity in the crypto space today. It used to be that crypto investing meant betting that a blockchain with its own mascot dog would probably be pretty valuable.



That devolved into gambling that tokens with only their own mascot dogs and little else might be worth even more. NFTs then made it possible to do away with the crypto altogether and just fractionalize the dog.



Now, a few lines of code and the whiff of a new digital asset class is all it takes to send fee markets haywire.&nbsp;



It would surely suck to get stuck in a situation where you must send bitcoin immediately or else. Same for any of the other cryptocurrencies which have suddenly become more expensive to use.&nbsp;



One could see high fees as a problem, even though they’re currently helping miners (and validators in the case of the other blockchains) pay the bills and expand their infrastructure.



Read more: <a href="https://blockworks.co/news/ordinals-impact-on-bitcoin-network">Ordinals are driving up Bitcoin fees — but that may be good for the network</a>



It could be that inscriptions continue to explode in popularity from here. Or, some other type of digital asset could meme into existence sometime down the road and overtake them altogether. Demand to move actual bitcoin around might even dwindle alongside those phenomena.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">you can&#39;t stop JPEGs on bitcoin. complaining will only make them do it more. trying to stop them and they&#39;ll do it in worse ways. the high fees drive adoption of layer2 and force innovation. so relax and build things.&mdash; Adam Back (@adam3us) <a href="https://twitter.com/adam3us/status/1736148203001553125?ref_src=twsrc%5Etfw">December 16, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Veteran Bitcoiner Adam Back sees the high fees as an opportunity to shift some activity to other networks



Nearly a decade ago, Bitcoin developers, miners and community members were <a href="https://www.coindesk.com/markets/2014/09/03/why-new-forms-of-spam-could-bloat-bitcoins-block-chain/">torn</a> over whether projects like currency layer Mastercoin and proto-collectible protocol Counterparty constituted spam.&nbsp;



Counterparty tokens are on-chain NFTs which can be traded peer-to-peer, spiritually similar to the Ordinals clogging up the bitcoin blockchain today.&nbsp;



Mastercoin’s initial coin offerings were meanwhile some of crypto’s first ever token sales, allowing companies and other projects to bootstrap by raising bitcoin in exchange for a new, tailor-made cryptocurrency.



Both relied on writing extra data to the Bitcoin blockchain, which now takes up more than 500GB in disk space. Growth in the size of the chain has been mostly linear, but has still doubled over the past three years. For scale, Bitcoin only took up about 20GB when Counterparty and Mastercoin were still relevant.



(Counterparty, mostly known for the RAREPEPE <a href="https://www.vice.com/en/article/aejvdb/collectors-are-using-the-blockchain-to-keep-rare-pepes-rare">phenomenon</a> from 2017, is still being developed, although usage has diminished drastically in favor of NFTs. Mastercoin eventually became Bitcoin’s Omni layer, where stablecoin Tether lived initially. Tether dropped support for Omni in August, citing lack of demand for the network.)



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/HXv2-EtPmq4wEHRC12fE0yLyJgou0J7salMEuJmodZal2N3DGiUFPpcPX1UjTKtzgKh_AJORSENTlZNjcnx8TTCdWWOe-xCCVfxqMlcD2YP_tlHJgMtsrjDLz9nqoKEAarSa8MWl6Sfu9dzw6PypicE" alt=""/><figcaption class="wp-element-caption">Average bitcoin fees are spiking, but they’re still not as bad as in 2021 (source: BitInfoCharts)</figcaption></figure>



The computers that keep Bitcoin up and running need to store all that data. Maintaining a server powerful enough to handle a half-terabyte hard disk isn’t really all that difficult or expensive in this day and age, but the process does require some planning.&nbsp;



But Bitcoin, like all other blockchain networks, would be better if it had more full nodes (short for “fully-validating nodes”).



A more distributed system, by way of machines checking the ledger from all over the globe, wouldn’t boost the number of transactions processed each block (thereby helping with its current backlog of 300,000 transactions). But it would technically make the network more resilient.



After all, if, for whatever reason, all Bitcoin full <a href="https://bitnodes.io/">nodes</a> were located in Texas during one of its patented winter power outages, users overall would be forced to wait until those nodes came back online to ensure their transactions were fully confirmed by the network.&nbsp;



Bitcoin wouldn’t go down per se — the network is online so long as miners solve blocks — but its trustworthiness would be murky in this very hypothetical scenario.



Of course, it’s totally unlikely that Bitcoin nodes would be concentrated in one location to such an extreme degree. Regardless, the system is stronger when full nodes are spread out, preferably maintained by different independent entities.



<h2 class="wp-block-heading">If you think transaction fees are high, then that’s on you</h2>



Chain bloat is a gradual concern that only really affects the system administrators running Bitcoin nodes, whether as a hobby or through servicing the crypto ecosystem through wallets, explorers, exchanges and whatnot.&nbsp;



The end user doesn’t really feel the size of the Bitcoin blockchain. But they do tend to notice when they pay $25 to have their transactions added to its dataset — as was the case for the average fee over the past week, compared to less than $2 only two months ago.



Transaction fees and the size of the blockchain aren’t at all correlated (transaction fees don’t increase as the chain gets bigger). Instead, transaction fees are high when users are outbidding each other to have their data added to Bitcoin as soon as possible.&nbsp;



Only so much transactional data fit into each Bitcoin block, initially 1MB, but SegWit stretched that number to around 4MB. Miners tend to wedge the most lucrative transactions together into a block, maximizing fees they would earn if they solve the next one.



Users willing to pay more will be given priority. Today, someone offering less than $3 in fees could wait days or even weeks for their transaction to go through. Pay closer to $10 and it might only take a couple hours.



Almost 30% of Bitcoin blockspace is currently made up of Ordinals — individual bitcoin units (satoshis) that have been customized with unique data like digital art, voice files or even <a href="https://blockworks.co/news/play-doom-bitcoin">browser-compilable code to DOOM clones</a> and the like. That’s up from zero percent this time last year, before bitcoin developer Casey Rodarmor discovered that inscriptions were possible. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Some are a bit more complex than others. The above screenshot mimicks a simple ERC-20 token. However, other inscriptions use smart contracts to create rules on pricing, supply, etc. For example, below is an example of making users pay to call the inscription transaction: <a href="https://t.co/GmeXME2dJj">pic.twitter.com/GmeXME2dJj</a>&mdash; Jarrod Watts (@jarrodWattsDev) <a href="https://twitter.com/jarrodWattsDev/status/1736987129958605078?ref_src=twsrc%5Etfw">December 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Not all inscriptions are the same</figcaption></figure>



It’s unfortunately unclear how that compares to the blockspace taken up by Mastercoin and Counterparty in their heydays. But the concern around whether inscriptions are unnecessary spam mirrors the worries around Counterparty and Mastercoin to a tee, proving little in crypto is new under the sun.



Still, most of the Ordinals activity relates to minting BRC-20 tokens — Bitcoin’s answer to Ethereum’s ERC-20s, except with far less utility. Many BRC-20s are a basic set of database entries: a ticker name, total supply and not much else, while others feature more complicated smart contract-style logic.&nbsp;



Similar inscriptions have since shown up on a slew of blockchains, including Dogecoin, Litecoin, Avalanche, Ethereum and Solana, spiking their transaction fees.&nbsp;



Even layer-2 blockchain zkSync Era — which is meant to help divert traffic from the Ethereum mainnet — felt its own major influx of inscriptions over the past few days, wreaking <a href="https://twitter.com/zkSyncDevs/status/1737258046752227493?t=VyNnb-QFwIruD3Qaqs_TBA&amp;s=19">havoc</a> for its blockchain explorers.



The world where the bulk of the human population transacts in Bitcoin every day still feels further away the higher fees get.



Money — as in the cash we use in our physical world — doesn’t usually cost anything to use, especially peer-to-peer. But the reality is that Bitcoin is expensive to use because people want to use it. Whatever the cost, the price is right as long as someone is willing to pay it.



In all scenarios involving increased Bitcoin adoption, whether as money or as a network for trading dumb pseudo-collectibles, transaction fees would continue to climb alongside demand for blockspace.&nbsp;



At that point, all that can be said is that the market has discovered the price of transacting on an independent financial network with little-to-no threat of censorship.



If you or your users have been priced out of that equation along the way, then maybe you just don’t value the networks as highly as you should.&nbsp;



After all, if you don’t pay any fees, does anything of value happen at all?



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">David is an Editor based in the Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb&#8217;s crypto vertical before launching Protos in 2021. He&#8217;s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co</div>


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Bitcoin blockspace isn’t too expensive, you’re just too cheap

Rena Shah

Bitcoin price predictions are always absolutely everywhere. Everyone who pays attention to crypto, whether for investing, building or entertainment, cannot avoid reading daily wild headlines about where the price of BTC is heading.



“The Fed May Have Just Triggered a $100 Billion Bitcoin Price Boom as Ethereum Surges Back,” “Bitcoin Price Drops Below $28,000 Post Labor Day – Rough Road Ahead,” and “Bitcoin at $100,000? Insiders Say the Cryptocurrency Could Test New Highs This Year,” are some of my recent favorites.



From $1,000,000 price bets to the proverbial “imminent crash,” those who have been around long enough in this space have either learned to tune predictions out or play into their hyped narrative themselves.&nbsp;



With the <a href="https://blockworks.co/news/bitcoin-litecoin-halvings" target="_blank" rel="noreferrer noopener">next bitcoin halving event</a> less than a year away, it’s a given that prices will move, maybe even wildly. So it’s time we stop predicting the price of bitcoin like it’s something interesting, useful, or even, frankly, predictable at all.&nbsp;



Instead, there’s an argument to be made that a new challenger to the bitcoin price prediction has entered the room — a contender for new predictions that could actually bring some useful insight to the community.



The challenger? Bitcoin transaction fees.



If we were able to provide more insight about bitcoin transaction fees, our predictions could actually be useful instead of hollow headline grabbers&nbsp;— we could help users find the lowest fee moments to dive into new use cases on Bitcoin, or help builders develop and scale Bitcoin layers more efficiently.



<h2 class="wp-block-heading">Bitcoin was meant to scale</h2>



<a href="https://trends.google.com/trends/explore?date=today%205-y&amp;q=bitcoin%20transaction%20fee">Interest</a> surrounding all aspects of the Bitcoin blockchain has hit record levels, as <a href="https://blockworks.co/tag/ordinals" target="_blank" rel="noreferrer noopener">Ordinals</a>, Stamps, BRC-20 tokens and other new protocols have sprouted up this year. Bitcoin’s average daily transactions over seven days reached <a href="https://blockworks.co/news/bitcoin-transactions-record-ordinals" target="_blank" rel="noreferrer noopener">record highs</a>, the first time it’s done so since December 2017. We’re entering this era where people actually want to do something more with Bitcoin than just point out its price.



Glassnode <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=transactions.Count&amp;mAvg=7&amp;s=1682985600&amp;u=1685505599&amp;zoom=">reported</a> that the average transactions reached 586,704.42 throughout May. The average transaction fee reached as high as <a href="https://blockworks.co/news/binance-bitcoin-withdrawals" target="_blank" rel="noreferrer noopener">seven dollars</a>, as Ordinal inscriptions surpassed three million in May 2023.&nbsp;



The thing we have forgotten is <a href="https://blockworks.co/tag/bitcoin" target="_blank" rel="noreferrer noopener">Bitcoin</a> was always meant to scale. Low fees were always going to be temporary. That’s why Bitcoin layer-2 solutions exist. As is the case with every other major layer-1 blockchain, when the base layer began to bloat, layer-2s were designed to efficiently scale usage and reprioritize where demand went toward the base layer. 



Read More: <a href="https://blockworks.co/news/ron-desantis-bitcoin-politics">Ron DeSantis Posturing On Bitcoin Is Just Performative Politics</a>



The Bitcoin builders community has <a href="https://blockworks.co/podcast/empire/5dbdd774-f8ec-11ed-9fad-4b0caf9e5c8d" target="_blank" rel="noreferrer noopener">talked</a> about the idea of DeFi and other use cases coming back to Bitcoin from other layer-1s for years, and now we are seeing that prediction become a reality. This revival of activity for Bitcoin means that the day-to-day price of transaction fees is going to matter more for many users than the daily moving average cost of one BTC.



I’ll go first with this new prediction model.



I predict that we will see another 10x from here in transaction fees.&nbsp;



As the Bitcoin thesis continues playing out, and as layer-1 apps grow and scale into layer-2s, we will see multiple spikes in the daily transaction price that will worry some and excite others. Ultimately, the higher fees will benefit the entire Bitcoin community.&nbsp;



Now, it’s your turn.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Rena Shah is the Head of Operations and Strategy at Trust Machines, a company building the largest ecosystem of applications on Bitcoin. Previously, she was the Head of Exchange at Binance.US, where she grew the exchange from $30M to $3B in daily trading volume within 18 months. Shah is a veteran in the crypto space with previous roles at Ember Fund, a retail-focused app, and with a market maker, Apifiny. Rena spent time on the commodities side with a unique background as a drilling engineer. She spent her early career offshore on drilling rigs while spinning up Bitcoin mining pools. Notably, she managed a $300M energy portfolio for the Family Office of the Houston Texans NFL team. She&#8217;s currently an Advisor at Tribe Capital.</div>


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<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: Built for Solana investors, developers and community members. The latest from one of crypto&#8217;s hottest networks.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>

Stop. Predicting. Bitcoin’s. Price.

Darren Kleine

Bitcoin is seeing a lot of traffic these days. Block sizes, mempool transactions, hash rates and fees — they’re all trending up.&nbsp;



A recent fee spike on the Bitcoin network was — fortunately for users — a brief outlier, apparently caused by a BRC-20 NFT craze that subsided within the span of a few days. Still, transactions and fees continue climbing on the network with <a href="https://blockworks.co/news/defi-on-bitcoin" target="_blank" rel="noreferrer noopener">increased activity</a> that now extends beyond purely trading and storing value.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1800" height="1013" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=1024&amp;h=1024" alt="" class="wp-image-56422" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=1800 1800w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/glassnode-studio_bitcoin-mean-block-size-1.png?w=80 80w" sizes="auto, (max-width: 1800px) 100vw, 1800px" /><figcaption class="wp-element-caption">Source: <a href="https://studio.glassnode.com/metrics?a=BTC&amp;category=Network%20Stats&amp;m=blockchain.BlockSizeMean&amp;s=1662073200&amp;u=1684389599&amp;zoom=">Glassnode</a></figcaption></figure>



Increasing block sizes and jumps in <a href="https://www.blockchain.com/explorer/charts/mempool-count">transaction</a> fees appear to be the result of activities that are usually more at home on rival network, <a href="https://blockworks.co/tag/ethereum" target="_blank" rel="noreferrer noopener">Ethereum</a>. Due to its baked-in virtual machine design, utilities like <a href="https://blockworks.co/tag/nft" target="_blank" rel="noreferrer noopener">NFT</a> minting and <a href="https://blockworks.co/tag/defi" target="_blank" rel="noreferrer noopener">DeFi</a> trading are commonplace on Ethereum. The Bitcoin network, on the other hand, only enabled similar capabilities as a sort of add-on through the <a href="https://blockworks.co/news/anticipating-bitcoins-taproot-upgrade-heres-what-you-need-to-know" target="_blank" rel="noreferrer noopener">Taproot upgrade</a> in 2021.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1440" height="810" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=1024&amp;h=1024" alt="" class="wp-image-56424" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=1440 1440w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/n-payments-per-block.png?w=80 80w" sizes="auto, (max-width: 1440px) 100vw, 1440px" /><figcaption class="wp-element-caption">Source: <a href="https://www.blockchain.com/explorer/charts/n-payments-per-block">Blockchain.com</a></figcaption></figure>



Avi Felman, head of digital asset trading at GoldenTree Asset Management, and Jonah Van Bourg, Cumberland’s global head of trading, spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=q2afnJQjblA">1000x podcast</a> about the pressures of new activities and the potential growth of a development community for the Bitcoin network.



<h2 class="wp-block-heading">Differing economic architectures</h2>



Felman notes that <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>’s economic architecture is very different from Ethereum’s. Despite activity “going through the roof,” holders of bitcoin see little to no direct benefit, with fees going exclusively to miners. On Ethereum, anyone holding <a href="https://blockworks.co/price/eth">ETH</a> can choose to stake it and participate in the benefits of increased traffic.&nbsp;



When Ethereum experiences an increase in usage, fees are burned, <a href="https://blockworks.co/news/ethereum-deflationary-model" target="_blank" rel="noreferrer noopener">reducing token circulation</a>. The opposite is true with Bitcoin, Felman argues. “You just get a worse dynamic because the more activity that exists on Bitcoin, actually, the more supply of bitcoin is probably gonna hit the market.”



“And it also deteriorates the user experience,” Van Bourg adds, referring to the recent withdrawal suspension of bitcoin on Binance. The largest crypto exchange was <a href="https://blockworks.co/news/binance-bitcoin-withdrawals" target="_blank" rel="noreferrer noopener">forced to pause BTC withdrawals and hike fees</a> to allow the Bitcoin network to catch up on pending transactions.



“Stakeholders of ETH are aligned because they literally are staking it and earning the rewards and processing the blocks, constructing them.”



“The beauty of proof-of-stake,” Felman says, “is that all of those fees that are burned and all the fees that are generated are now paid back to owners of the asset.”



<h2 class="wp-block-heading">Should we be worried?</h2>



While the security of the Bitcoin network is “possibly more robust,” Van Bourg says, its capacity to host more applications exhibits flaws.



Van Bourg asks, “Should we be worried about Bitcoin dominance as a result of the fact that transactions have exploded on Bitcoin, an L1 that isn&#8217;t necessarily built to work like Ethereum and is deteriorating its UX?”



Felman expects a “tech solution” to the problem, with the potential growth of a community of developers on the network. Van Bourg promptly disagrees, noting that “there&#8217;s no community of developers that&#8217;s all in agreement working on Bitcoin the way that there is on ETH.”



“There are Bitcoin core devs, but they&#8217;re split into factions.”



Felman counters, “Ordinals were developed. These BRC-20s were developed.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG3258032408" width="100%"></iframe>







“I think what&#8217;s happening right now is you&#8217;re seeing the origin sparks of an organic development community for Bitcoin.”



Felman agrees that such a community does not yet exist. He expects that the number of people that are “<a href="https://www.blockworksresearch.com/research/stacks-the-difficulties-of-scaling-bitcoin" target="_blank" rel="noreferrer noopener">trying to figure out how to build on Bitcoin</a>,” will double over the next few months “based on this activity,” however.



“People flock to where you can make money at the end of the day. And the reality is that you can now make money building on Bitcoin.”&nbsp;







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Is All This Bitcoin Traffic a Good Thing?

Bessie Liu

The community that governs Uniswap&#8217;s decentralized exchange is once again discussing the possibility of implementing a fee switch.



GFXLabs’ latest proposal is looking to charge liquidity providers a fee equivalent to ⅕ of the pool fees across all Uniswap v3 pools and redistribute the earnings to the UNI community.



Uniswap v3 Polygon will undergo an initial test of the proposal. Depending on its success, the community will be presented with a subsequent proposal to determine whether or not the fee switch should be activated on Ethereum.



Separately, Uniswap community governance must also create a follow-up proposal to determine where to allocate the revenue.&nbsp;



An <a href="https://blockworks.co/news/uniswaps-proposed-fee-switch-would-cut-into-liquidity-provider-payouts" target="_blank" rel="noreferrer noopener">initial</a> fee switch proposal was introduced in July last year by community members Leighton Cusack, founder of DeFi protocol PoolTogether and Guillaume Lambert, the founder of Panoptic.



The proposal suggested that Uniswap should test the parameters of its fees in select liquidity pools: 0.05% of DAI-ETH, 0.3% of ETH-USDT and 1% of USDC-ETH.



Despite passing a <a href="https://snapshot.org/#/uniswap/proposal/0xe9f8e5dd7ec26f7c0e7dd9e19bb8d57497d27d4a74be01cd3cad159cf3901b7f">temperature</a> and <a href="https://snapshot.org/#/uniswap/proposal/0xe9f8e5dd7ec26f7c0e7dd9e19bb8d57497d27d4a74be01cd3cad159cf3901b7f">consensus</a> check on Snapshot, the protocol did not record the proposal on chain. This was due to concerns raised by a handful of community members regarding the lack of clarity surrounding US tax laws and the potential implications of the revenue generated from the fee switch on the DAO.



“Although legislation has been introduced to address the issue, it has not passed Congress or been signed into law,” Devin Walsh, the executive director of Uniswap Foundation said in an earlier <a href="https://gov.uniswap.org/t/fee-switch-pilot-update-vote/19514/49">proposal discussion</a>. “Following a holistic analysis, we do not feel comfortable recommending the creation of a traditional legal entity structure, if the proposal were to be approved right now.”



GFXLabs’ latest proposal noted that concerns around taxes should be redirected to the protocol’s treasury.&nbsp;



“For the purposes of this proposal, treasury management is out of scope,” it wrote.



So far, Uniswap’s community governance has given the new fee switch proposal mixed reviews.&nbsp;



A community member who goes by <a href="https://gov.uniswap.org/u/markus0">markus0</a> noted that although the fee switch is technically feasible, it poses clear disadvantages. Beyond legal risks and increased competition from other DeFi protocols, DAOs also do not operate as effectively as a business, he notes.



“If we want to move towards turning on the fee switch, I think a much better idea would be selling a portion of the UNI in the treasury. If it turns out the DAO can effectively allocate those funds and handle the legal and tax ramifications of the sale &#8211; then let’s start thinking about turning on the switch,” markus0 wrote.



Cusack, the author of the initial fee switch proposal, noted that the latest proposal shared a similar weakness to the earlier one.



“It does not address what to do with any fees collected,” he wrote. “I’ve come to the strong belief that any fees collected by the protocol should be autonomously distributed in a programmatic way. There is a big design space in what that could look like but the main point is that they should not simply collect to a treasury where they are then arbitrarily distributed based on later token votes.”



Uniswap community governance will have another week before the proposal will be put on Snapshot for a temperature check.



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Uniswap Community Mulls Fee Switch Proposal

James Cirrone

Binance will support Bitcoin <a href="https://blockworks.co/tag/ordinals" target="_blank" rel="noreferrer noopener">Ordinals</a> — akin to NFTs on Ethereum — on its NFT marketplace beginning in late May 2023.



This means that Binance users will no longer need a separate Bitcoin wallet that supports Ordinals inscriptions, making transactions quite a bit easier.&nbsp;



“Binance users will also be able to purchase and trade Bitcoin NFTs directly with their Binance accounts,” a statement from Binance said. “This integration offers even more seamless and efficient trading for Binance users.”&nbsp;



The largest centralized crypto exchange also said it would be offering Bitcoin NFT creators “royalty support” and additional ways to generate revenue.&nbsp;



Mayur Kamat, Head of Product at Binance, told Blockworks that it&#8217;s too early to tell how transformational bringing Ordinals to the NFT platform will be, but “time will tell.”



“Since the beginning, everyone has wondered about Bitcoin use outside of [an] inflation hedge or [a] store of value. Not only has it shown massive value, but we are now seeing that the network can aspire to be more,” Kamat said.



Ordinals <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">launched in January</a>, allowing users to “inscribe” text, audio, art or even <a href="https://blockworks.co/news/play-doom-bitcoin">video games </a>into individual satoshis, BTC’s smallest unit. They reside entirely on the blockchain.&nbsp;&nbsp;



This news of Binance’s integration of Ordinals comes after a rush of Ordinals inscriptions contributed to Bitcoin <a href="https://blockworks.co/news/bitcoin-transactions-record-ordinals">processing the highest number of transactions</a> in its 14-year history on May 1, 2023, <a href="https://dune.com/dgtl_assets/bitcoin-ordinals-analysis" target="_blank" rel="noreferrer noopener">on-chain data</a> shows.



More generally, Bitcoin transactions are breaking all-time records — there were <a href="https://blockworks.co/news/binance-bitcoin-withdrawals">444,000 unconfirmed transactions</a> sitting in the <a href="https://www.blockworksresearch.com/glossary#mempool" target="_blank" rel="noreferrer noopener">mempool</a> Monday morning. 



This surge in transactions and the skyrocketing fees were the reasons Binance gave for temporarily halting bitcoin withdrawals on Sunday. The company said it would adjust its fees to “prevent a similar recurrence in the future,” and flirted with a possible integration of the Bitcoin Lightning Network to speed up transactions.



<a href="https://twitter.com/binance/status/1655380303383261185" target="_blank" rel="noreferrer noopener">https://twitter.com/binance/status/1655380303383261185</a>



<a href="https://blockworks.co/news/binance-to-launch-nft-marketplace-in-june">Binance NFT</a> already added support for the Polygon POS network in March 2023 and the Ethereum network in October 2021.



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
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Bitcoin Ordinals NFTs Coming to Binance in Late May

Sam Reynolds

<div id="highlights-block_6141f6db39d9f" class="highlights">
 <ul>
 <li>Transaction fees paid to miners have dropped to a low not seen since March 2020</li>
 <li>Investors in the industry remain confident in North American infrastructure shift trend</li>
 </ul>
 
</div>



Transaction fees paid to bitcoin miners are at a low not seen since the <a href="https://www.cnbc.com/2020/03/13/bitcoin-loses-half-of-its-value-in-two-day-plunge.html" target="_blank" rel="noreferrer noopener">Covid crash of March 2020</a>, but experts think the decline is unlikely to affect the industry’s mining push into North America due to block subsidies which will remain in place <a href="https://www.bitcoinblockhalf.com/" target="_blank" rel="noreferrer noopener">until sometime in the spring of 2024</a>.



As of writing, bitcoin can be sent for 5 &#8220;satoshis&#8221; per byte (currently about $0.35), even at a high priority, meaning the transaction will be processed in the next block, or 1 satoshi per byte (about $0.07) if you&#8217;re willing to wait for 20-30 minutes. The fee is not linked to the value of the transaction, so a person could even send $1 billion for 7 cents and have settlement essentially guaranteed within a couple of hours.



<h3 class="wp-block-heading">How it works</h3>



The Bitcoin blockchain is made up of “blocks” of transaction data, cryptographically linked together. Blocks can vary in size (think of them as a page of a ledger or record book), based on a variety of factors. Currently, each block is <a href="https://www.blockchain.com/charts/avg-block-size" target="_blank" rel="noreferrer noopener">approximately 1MB</a> in size.



Block subsidies are rewards given to miners for their effort in securing the network and are determined by an algorithm in <a href="https://bitcoincore.org/" target="_blank" rel="noreferrer noopener">the protocol’s source code</a>. Subsidies are distributed upon the completion of a new block after the preceding one is finished, which occurs — on average — every 10 minutes.



<div class="wp-block-image"><figure class="aligncenter size-full is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg" alt="BTC blocks" class="wp-image-7938" width="630" height="200" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=630 630w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-blocks-copy.jpg?w=80 80w" sizes="auto, (max-width: 630px) 100vw, 630px" /><figcaption>Recently mined Bitcoin blocks; Source: mempool.space</figcaption></figure></div>



Currently, the block subsidy is 6.25 bitcoins per block completed. Block subsidies comprise one part of the revenue miners generate from their activities. The remainder is transaction fees — the fees users of the blockchain pay to send bitcoin over the network.



<h3 class="wp-block-heading">Transaction fees matter</h3>



Transaction fees have fallen sharply since mid-April, due to a combination of lower network activity and <a href="https://bitcoinvisuals.com/ln-capacity" target="_blank" rel="noreferrer noopener">growing capacity</a> on the Bitcoin layer-2 Lightning Network. 



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="933" height="470" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg" alt="BTC fees" class="wp-image-7945" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=933 933w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-15-BTC-fees.jpg?w=80 80w" sizes="auto, (max-width: 933px) 100vw, 933px" /><figcaption>Fee revenue since April 2021; Source: blockchain.com</figcaption></figure>



“Although fees declining isn&#8217;t great for miners, I don&#8217;t see this as a long-term issue. We are still so early in the digital asset adoption curve that I think this will iron itself out over time,” Brian Dixon, Chief Operating Officer of Digital Currency and Blockchain asset management firm Off the Chain Capital, told Blockworks. “Most well-known mining operations are very profitable and can sustain themselves during this period of volatility.”



Indeed, in an August 3 note, Compass Point Research analyst Michael Del Grosso gave publicly listed miner Marathon Digital a buy rating, and called Riot Blockchain, another miner, a buy in an August 24 note.&nbsp;



Kevin Zhang, vice president of business development at Foundry, a Digital Currency Group subsidiary that provides financing for bitcoin and other mining equipment, also agrees that fee compression isn’t a huge deal for miners and won’t be making a “direct impact into the investment thesis or expansion plans in North America.”



“That being said, longer term, if the price of bitcoin in USD doesn’t continue to appreciate along the same pace as hashrate and network difficulty then the fee’s will need to increase to offset the lost revenue over time,” he added.



<h3 class="wp-block-heading">The hashrate factor</h3>



Bitcoin is programmed such that subsidies become easier or harder to achieve depending on the amount of hashrate available, and is updated roughly every two weeks to keep the average block time consistent. Increased hashrate improves the security of the network and is correlated with the $BTC price.



Despite some market volatility, generally speaking the mining industry has been on a bit of a bull run as it <a href="https://cms.blockworks.co/china-mining-exodus-seen-as-positive-for-bitcoin/" target="_blank" rel="noreferrer noopener">moves</a> to North America from China given the recent crackdowns in-country on the industry.&nbsp;



“It’s been a huge net positive for the market,” said Dixon, noting that as an investor he’s seen significant interest from energy companies looking at how bitcoin mining can use off-peak <a href="https://cms.blockworks.co/microstrategy-and-galaxy-bitcoin-mining-council-claims-mining-is-one-of-most-sustainable-industries/" target="_blank" rel="noreferrer noopener">power</a> making the grid more efficient overall.&nbsp;



Several of the largest US-listed bitcoin mining firms with operations predominantly in North America have collectively mined over 10,500 BTC year-to-date with nearly 40% of the output coming from the past two months, according to Off the Chain Capital. Five of the largest bitcoin mining firms have added almost all of their mined bitcoin to their balance sheets — adding up to 17,960 BTC as of August, valued at around $820 million, the firm also noted.&nbsp;



Dixon said that it&#8217;s going to take some time before companies are able to ramp up to full capacity. Generally, bitcoin miners don’t use data centers, but prefer to build out their own hosting facilities, which will take some time given the tight labor market in the US. And then there’s the monumental task of getting all the dedicated mining <a href="https://cms.blockworks.co/bitmain-set-to-add-56k-bitcoin-mining-rigs-in-georgia-state/" target="_blank" rel="noreferrer noopener">machines</a> to North America, in spite of the challenging freight market.&nbsp;



“This isn’t going to happen tomorrow,” Dixon said. “Covid continues to be a challenge when you are moving this much freight between countries.”



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