On-chain data shows that the Bitcoin network has become significantly cheaper recently, with per-block transaction fees nearing cycle lows.
Bitcoin Miners Are Getting Low Fees Recently
As analyst James Van Straten points out in a new report: post BTC transaction fees on X are at recent cycle lows. Here, “transaction fee” naturally refers to the fee that the user must attach to a transaction on the Bitcoin blockchain as compensation for the miners who process it.
The value of this metric is typically directly related to the traffic the network is observing. During periods of high activity, transactions can get stuck in the mempool for long periods of time because the network has limited capacity to process movements.
Users in a hurry can opt for a higher-than-average fee for that period to force miners to prioritize their moves. Especially during busy periods, average fees can skyrocket as many senders compete to get the transfer first.
However, when there is little traffic on a blockchain, users don’t have much incentive to pay significant fees, so the network’s averages tend to remain low during that period.
One way to measure transaction fee trends over long periods of time is to measure the average fee paid to miners per block. The chart below shows how the value of this metric has changed on the Bitcoin network over the past few years.
The value of the metric seems to have been quite low in recent days | Source: @jvs_btc on X
As you can see from the graph, the average Bitcoin fee paid per block has been quite low recently. This means that miners did not earn much from fees.
The same chart also shows data on block subsidies (the total reward amount miners receive per block). Historically, trading fees have rarely matched these rewards, and at today’s lowest levels, fees are only a fraction of that.
Block subsidies and transaction fees combined account for the overall revenue of Bitcoin miners, but the imbalance between them has made the former the primary source of income for miners.
This worked for chain validators, but not forever. Since BTC supply is limited, miners will eventually run out of block subsidies.
But even before that, there is an even more imminent threat posed by halvings, periodic events in which block rewards are permanently halved. A half-life occurs every four years, with the next occurring in approximately 9 days.
The current BTC block subsidy is 6.25 BTC per block, but this halving will reduce it to 3.125 BTC. With each subsequent halving, this reward will be reduced further, meaning miners’ main source of income will continue to be under pressure.
Therefore, the long-term future of miners depends on transaction fees. Last year, fees matched block rewards in several cases, largely driven by the inscription craze. Perhaps applications like Inscriptions will increase fees in the future as well.
Straten sees an interesting pattern in fee trends. Fees increased before the last halving and appear to have continued to rise thereafter. Analysts expect something similar to happen this time too.
BTC price
As of this writing, Bitcoin is trading at around $69,400, up more than 3% since last week.
Looks like the price of the asset has gone down recently | Source: BTCUSD on TradingView
Unsplash.com, featured image by Brian Wangenheim from Glassnode.com, chart from TradingView.com