88% of all BTC transfers are overpaying transaction fees

Published at: Feb. 11, 2021

According to analysis by Mark “Murch” Erhardt of Chaincode Labs, 88% of all Bitcoin transaction inputs pay higher fees than are necessary. Erhardt bases his conclusion on data showing just 12% of transaction inputs use the SegWit format, which is less fee intensive than transacting with legacy inputs.

Erhardt believes that a reliance on legacy transaction fees keeps Bitcoin blocks smaller than they could otherwise be, contributing to a seemingly growing backlog of unconfirmed transactions.

A clogged up Bitcoin mempool containing 107 blocks worth of transactions at one point yesterday serves as a reminder that it is possible to save money on fees by creating less costly transactions. The easiest way to do this, according to Erhardt, is by adopting SegWit for all future transactions.

Erhardt pointed out that switching from legacy to data efficient SegWit transactions is necessary to minimize bloating of the blockchain:

“The longer less efficient output formats are prevalent, the more future blockspace debt we accumulate.”

Erhardt believes that integration of SegWit into major wallet provision services is long overdue, contributing to unnecessary mempool and blockchain bloat. “It's been almost 3.5 years since SegWit activated,” he noted at the end of a thread about the state of the mempool.

“At what point is it acceptable to consider wallets that cannot send to native SegWit addresses outdated?”

The mempool has not cleared in 57 days. BTC is estimated to facilitate more on-chain payments than ever before. BTC has 98.3% of the SHA256d hashrate. The average blocksize is 1,320.39 kB for the past 30 days. Fees made up 16.13% of the past day's mining rewards.#mempoolreport pic.twitter.com/ldJsnETeK8

— (@murchandamus) February 10, 2021

Employed for years as a cryptocurrency wallet developer before being hired at Chaincode Labs in 2020, Erhardt is a specialist in UTXO management for commercial Bitcoin wallets, helping them save money on business-related transaction and maintenance costs in a variety of ways.

SegWit transactions currently account for approximately 51% of all Bitcoin transactions; a statistic that is deemed likely to grow in size as commercial wallet providers face rising demand for SegWit address support.

The estimated minimum fee for inclusion into the next block is currently 149 sat/byte, which equates to a fee of $14.97 at a price of $44,870 per BTC.

How using SegWit saves on transaction fees

While SegWit transactions are technically no smaller in size than legacy transactions, the components of their data are weighted differently when it comes to including them in a block.

Data pertaining to the witness component of a transaction is considered to be non-essential to a functioning blockchain and therefore discounted when totaling a transaction’s size. This makes SegWit transactions appear smaller and therefore require less of a fee to process — they are quicker to confirm than a legacy transaction with the same fee

How to start using SegWit now

After finding a competent and trustworthy wallet that supports SegWit transactions, the most important component to using SegWit is moving funds designated to be spent from legacy addresses (begins with a “1” or “3”) to SegWit addresses (begins with a “bc1”).

One of the most popular and battle-tested Bitcoin wallets with SegWit support is Electrum, which also supports multi-signature transactions and the import/export of private keys. A growing number of major exchanges are adopting SegWit support, including Bitstamp, BitMEX, and most recently, Binance. This means transactions to exchanges can also be made cheaper by sending them from a SegWit address.

Tags
Blockchain
Bitcoin
Fees
Wallet
Transactions
Mempool
Electrum
Segwit
Related Posts
Bitcoin transaction fees briefly doubled yet remain exceptionally low
Got some Satoshi to send or Bitcoin (BTC) wallets to reorganize? It’s increasingly cheap to do so. According to an Arcane Research report, Bitcoin “transaction fees have stayed low since July 2021, showing no signs of rising.” There was, however, a small bump in transaction fees last week. Shown as a small jump at the tail end of the graph, clustering of the mempool pushed “up the average transaction fees per day over the past seven days to $691,000, a doubling since last Tuesday.” Nonetheless, the doubling in transaction fees is insignificant: transaction fees remained in a low range. Miners …
Adoption / March 9, 2022
Bitcoin and Ethereum transaction fees sink 95% from all-time highs
The cost of using the Bitcoin and Ethereum blockchains is on the rapid decline, as evidenced by a 93%–95% reduction in average transaction fees over the past couple of months. Fees are paid to the miners who process transactions on a typical proof-of-work blockchain. The size of the fee depends on the size of the transaction in bytes and how many transactions a coin has gone through in the past (as these need to be checked every time a coin is moved). Supply and demand for space also dictate the size of a transaction fee since blockchains have limited capacity. …
Blockchain / June 9, 2021
Someone Transferred a Billion Dollars in Bitcoin for Less Than $5
According to information provided by the crypto Twitter account, Whale Alert, 92,857 BTC ($1,092,603,640) were sent from an unknown wallet for a fee just of $4 at current market rates. Although the Bitcoin network is well known for its generally low transaction fees, the cost-per-transaction has increased by over 500% in the last month. Bitcoin Block Bot, another whale alert-style Twitter account, reported on June 27 that a 101,857 BTC transaction had moved 0.5% of all Bitcoin currently in circulation, with a total transaction fee cost of around $0.48. Unknown information We do not know who sent these funds, nor …
Bitcoin / Aug. 6, 2020
Share of SegWit-Spending Bitcoin Transactions Now Over 50%
The percentage of Segregated Witness (SegWit)-spending Bitcoin (BTC) transactions has reached 50.5%, or an all-time high, according to transactionfee.info statistics. SegWit solution to Bitcoin transactions SegWit is a proposed update to the Bitcoin Core, which is designed to reduce processing and wait times. Originally, the update was aimed at solving transaction malleability, a well-known weak spot in Bitcoin software. However, SegWit offers a range of other advantages and now the focus of attention has shifted from fixing transaction malleability to solving the problem of Bitcoin scaling. Explaining its metrics, transactionfee.info points out that a Bitcoin transaction can have multiple outputs …
Blockchain / Sept. 16, 2019
Bitcoin average transaction fees lowest in two years at $1.04
The average transaction fee per Bitcoin (BTC) transaction made a complete 360-degree over nearly two years to settle down at $1.039, a number which was last recorded back in June 2020. The BTC transaction fee is the cost to transfer any amount of BTC, which is also directly proportional to the time it takes to validate and complete the transaction. As evidenced by data provided by Blockchain.com, the average BTC transaction fee saw a steady decline from an all-time high of $62.788 in April 2021 before coming down to an eight-month average of $2 in July 2021. Before April 2021, …
Blockchain / April 18, 2022