Bitcoin transaction fees are high!
We’ve seen the recent congestion of the mempool – some are calling it an attack on bitcoin! Regardless, whether innocent or malicious, bitcoin transaction fees are high. Really high. For those of you that DCA on a frequent basis, it makes you question your UTXO management. Those of you that use bitcoin regularly, it makes you question why you didn’t set up more lightning channels (🙋🏻♂️). For all of us, this is very annoying. Well… almost all of us.
How did we get here?
While impossible to say with certainty, this certainly feels like the equivalent of a DDOS attack on Bitcoin. Effectively a bunch spammy transactions looking to flood the network. In fact, as I write this I was checking out the mempool and noticed these recent transactions. It looks like identical transactions of ~ $0.15 being dumped into the blockchain have no value to the sender (obviously). These transactions are costing the sender ~$10-20 due to the high bitcoin transaction fees.
Many theories about this have been circulating about who might be behind these bitcoin transaction fees. Some say state actors. Others say members of the crypto casino. Regardless, it goes to show one of Bitcoin’s very few vulnerabilities – it doesn’t scale very well. The network is being used more than the existing infrastructure can support and the price of bitcoin hasn’t risen to make it feel “worth it”. Last time we had bitcoin transaction fees like this, bitcoin had just done a classic quintuple so it was all high fives and who cares. However, this poses a particular problem for those interested in self-custody and non-custodial businesses.
Non-custodial woes
If you’ve listened to me speak before, seen one of my videos (I go live for 21 minutes 3 times/week!) you’ve heard me say that running a non-custodial bitcoin business is more costly and difficult in every single way. Bitcoin transaction fees are a main reason as to why. Every time you buy bitcoin at bitcoinwell.com/app you get a TXID. This means we pay a miner fee. As you may have seen, we slashed our rates to 0.21%, which means on a $100 transaction we make $0.21 BEFORE our costs. Those costs, among other things, include bitcoin transaction fees – or miner fees.
There are many ways to combat this, and we plan on implementing all of them eventually, but they come in order of priority of keeping our books balanced (shareholders 🫡). Here are the 3 things we will be implementing to ensure our non-custodial bitcoin platform remains safe and cost effective:
- Bitcoin network fee
- Batching (this will be free for to you!)
- Side chains like (lightning network)
Bitcoin network fee
The bitcoin transaction fee (miner fee) is a function of the Bitcoin blockchain and needs to be paid to the miners who support the blockchain. As a result, when you pay a Bitcoin network fee for your transactions on bitcoinwell.com/app you’ll have some control over how much and ever sat you pay will go directly to the miners to fulfill your transaction. We are going to mimic the priority sequence from mempool and offer a dynamic, four-option setting for your transactions to go through.
- Lowest – double the minimum rate or the low priority, whichever is cheaper
- Low – places your transaction in the next 2-3 blocks
- Medium – places your transaction in the next 1-2 blocks
- High – places your transaction in the next block
Again, this Bitcoin network fee will by dynamic, set by the blockchain, paid directly to the miners.
Batching
This is a practice that effectively allows us to pool transactions together and send them all at once. AKA, a “pay to many” transaction. If you aren’t in a rush for your transaction, and you are comfortable with your TXID hitting the blockchain alongside others this will be your best option. If you are used to custodial exchanges you will be familiar with this as it is the only option (and they charge you a fee). The major downside to batching is that it will take longer and is slightly less private, the upside is that we will pay the bitcoin network fee.
Sidechains
Don’t get too excited, this isn’t an official announcement that Lightning Network is officially coming to Bitcoin Well. But, it is safe to say that Lightning Network is unofficially coming to Bitcoin Well. While we don’t have a timeline yet, we are heavily considering how Lightning fits into our services. Specifically our “sell” services like bill payments and e-Transfer out (where you receive an e-Transfer). If you have grown used to using your bitcoin, these fees are costing you precious sats and we want to do everything we can to avoid that.
What else can be done?
First things first, login to bitcoinwell.com/app and check your settings! Here you will see your default setting for transactions (set to lowest by default) and you can change it depending on your needs. In the coming weeks, Batching will be available by default and you’ll be able to choose between speed and costs.
I have to admit, this bitcoin transaction fee spike snuck up on me. I realized how exposed I am, and how easy it is to lean on custodians, to the network. Luckily, I’m already in a good UTXO management pattern (I consolidate my DCA transactions quarterly, usually when fees are low). But, my lightning usage is almost non-existent if it’s not through a custodian like Wallet of Satoshi. As a result, when the fees calm down, you better believe I will have some better routing and have my nodes set up so I can self-custody my lightning payments with ease.
Warning! Don't get sucked in!
As a bitcoiner, as someone how is dedicated to self-custody and sovereignty, you must do what is right, not what is easy. This means be smart with your bitcoin practices. Don’t use a custodian because it’s cheaper – we’ve seen what can happen. Put the work in and prepare yourself to be better prepared next time. Ask questions. Watch tutorials. Come to a meetup! Remember your bitcoin journey is unique and important.
So stay strong my friends! Bitcoin is working exactly as intended, this too shall pass… and bitcoin will be better off.
Stay sovereign 🫡
Adam
