TD₿: Bitcoin Transaction Fees by Joe Burnett and Pierre Rochard
TL;DR Even with very low transaction fees, Bitcoin has reliably settled trillions of dollars worth of transactions monthly without needing any trusted third parties.
Hey Bitcoiners,
The FUD of the moment is “Bitcoin transaction fees are too low. Bitcoin’s long-term security is jeopardized. Therefore, buy my shitcoin!”
This is comical to me because I remember not too long ago when the FUD was the exact opposite, that Bitcoin’s transaction fees were too high, so it would never scale.
This opened the doors for all kinds of shitcoins to emerge in the ICO boom of 2017. All one heard back then was, “Bitcoin’s transaction fees are too high! It can’t scale! Buy my centralized shitcoin with low fees!”
Swan CTO Yan Pritzker describes the FUD around Bitcoin’s fees as the “goldilocks principle.” It’s this belief that Bitcoin’s fees must be exactly what people think the fees should be at this very moment, or Bitcoin will fail.
This FUD derives from the nonsensical idea that one day Bitcoin’s fees will be just the right amount, so everyone will be happy.
When I view the above chart, I actually get quite bullish. Bitcoin suffered from congestion in the bull market run-up of 2017 as transaction volume and fees spiked together. Yet since then, the Bitcoin community has implemented scaling solutions such as SegWit, Lightning, batched transactions, and more, which have clearly improved Bitcoin’s scalability.
Fast forward to today, and we have high transaction volumes, but we have not experienced the same network congestion that we witnessed in 2017. Instead, Bitcoin has settled trillions of dollars worth of value this year with finality and with low fees. Bitcoin is scaling. (Bullish!)
This occurred because high fees from network congestion in 2017 resulted in a free market response from the community to develop scaling solutions. Once the scaling solutions were implemented, fees dropped. This will inevitably lead to more usage and adoption, which will likely lead to higher fees, and the feedback loop will repeat. This is the Bitcoin scaling cycle, and it’s highlighted by Joe Burnett’s fantastic graphic below.
Low fees are also a sign that there is no censorship or attacks occurring on Bitcoin’s base layer. If miners attempted to attack the network via an “Empty Block Attack,” then transaction fees would spike. This spike in fees would attract more miners to plug in, increase the hash rate, and make life much more difficult for the attacker.
Said differently, Bitcoin’s transaction fees can be better thought of as a market-based dynamic defense that fluctuates in response to attacks. Today, there are no signs of censorship or attacks taking place, evidenced by the low fees. (Bullish!)
These concepts are discussed in this must-read report from Joe Burnett and Pierre Rochard titled, “Bitcoin Transaction Fees: The Future Economics of Bitcoin Settlement Finality.” (09/01/2022)
The point here is that Bitcoin’s fees will continue to fluctuate with adoption, the scaling cycle, and attacks. Right now, low fees are evidence that the current scaling solutions are working and that there are no attacks occurring at the base layer.
The last thing I’ll say on this subject is that this FUD around Bitcoin’s long-term security has an underlying bearishness to it. It’s as if these individuals look at the current fee market, calculate the dollar amount at Bitcoin’s current price and adoption level, then extrapolate it out into the future and say, “Fees are too low. They can’t incentivize miners. Bitcoin is doomed.”
They have zero imagination about how much economic activity will flow through the Bitcoin network and how much purchasing power will be packed into 1 sat in the future. Who is to say how valuable a block reward of 37 sats will be down the road when we’re living in a hyperbitcoinized world?
So if you hear this fee FUD and you don’t feel like explaining all of the nuances above, just reply, “I get it. You’re bearish,” and move on with your life.
Tick tock next block,
Sam Callahan
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