Published: June 12th, 2024
Crypto users are waiting longer on Bitcoin transaction this week due to bottlenecks created by the Seychelles-based OKX exchange as it seeks to re-balance its BTC wallet transactions.
Data from mempool.space shows the cost of fast processing a medium-priority Bitcoin transaction was USD 34.06 on Tuesday, 11th June. Others have to wait in a queue of more than 333,000 unconfirmed transactions.
In the past, slowdowns of this nature would have been put down to Bitcoin’s limited transaction throughput, which has been tested numerous times this year by the arrival of Ordinals and Runes.
An analysis by CryptoQuant shows that the congestion is being caused by OKX, as it ‘balances internal transactions to consolidate outputs,’ the company tweeted this week. ‘This has led to a sudden surge in fees.’
The Bitcoin blockchain stores transfers in the wallets of individual users’ wallets in the form of unspent transaction outputs (UTXOs). If a user attempts to send BTC to another wallet, the transaction fees on all the UTXOs they’ve accumulated need to be paid first, which gets expensive when big transfers are on the table.
This becomes problematic for exchanges, which typically have loads of small transactions coming in, and big transactions going out. They unclog their wallets by consolidating their UTXOs, which in practice means spending them in bulk during periods where network fees are relatively low.
This merging all of the inputs into much larger outputs in the same wallet can be a burden on other Bitcoin users, pushing up fees across the network.
It's a revenue windfall for Bitcoin miners, who mempool.space says are doubling the amount of BTC they earn per block. For individual traders and regular users alike, however, it's a frustrating game of sit and wait.
In February 2024, Crypto investment firm Grayscale predicted that this year’s Bitcoin halving would unfold in unexpected ways, as the arrival of spot Bitcoin exchange traded funds (ETFs) and Bitcoin ordinals had altered the market.
The firm’s analysts said Bitcoin ETFs had created a steady source of BTC demand that could offset the sell pressure from new mining issuance.
Though the report noted that Bitcoin's price typically rises in the aftermath of a halving, it offered the caveat that cryptocurrencies like Litecoin, which also have a halving mechanism, have not experienced the same appreciation in price after a halving has occurred.
Analysts also pointed out that Bitcoin price increases post-halving have been impacted by the timing of major macroeconomic events like COVID-19 and the Eurozone debt crisis.
Grayscale said there was evidence that ‘miners have been getting ready for the halving’s financial effects for a long time, taking pre-emptive steps to stem potential losses like selling their holdings onchain.’
Given that these moves were visible as far back as Autumn of 2023, Grayscale analysts believed that miners would be in a stronger financial position ahead of the halving. Even if some departed the market as a result, the hashrate decline would prompt an adjustment in mining difficulty to sustain network stability.
The report also highlighted the arrival of Bitcoin ordinals on the number one crypto's underlying market structure. The pace of ordinal inscriptions (and the transaction fees attached to them) could serve as a bellwether, signaling how miners will be incentivized to keep the network secure when block rewards decline.
In mid-October 2023, the difficulty level for Bitcoin mining reached a new high for the year, rising by 6.48 per cent on Monday 16th October and raising the computational bar for miners seeking to uncover blocks.
New data from the CoinWarz analytics service has tracked the required number of hashes needed to mine a block at 61.02 trillion.
It marked the third consecutive rise in difficulty faced by miners since August of that year, and nearly double the difficulty level reached in October 2022.
Bitcoin's network calibrated to readjust every 2,016 blocks (roughly once a fortnight), as the blockchain measures whether mining activity has increased or reduced the time needed to find a new block. An increase in time usually means more miners have joined the network.
The network responds by raising the level of mining difficulty. The complex equations that need to be solved become even more complex, and miners have to apply more computational power in order to mine a block.
Some analysts are blaming the spike in activity on the upcoming Bitcoin halving, which is now about six months away.
In an interview with Bloomberg, Jeffery May, an executive with crypto exchange BTSE, said that the surge in mining activity ‘probably means everyone is trying to maximise returns before next year’s halving. After it happens, the rewards for
BTC mining will be cut by fifty per cent. Miners are surely trying to wring every bit of value out of their equipment before the cutoff.’
‘We expect to see a rush of miners coming online between now and April 2024. It will be in every miner’s interest to maximise use of their equipment at the current payout rate of 6.25 BTC/per block. After the halving that drops to 3.125 BTC/block.’
Significant changes in mining activity usually signal that something is afoot in the market. It might be an upcoming network event like the next Bitcoin halving, or indicate that gains or losses for a given crypto asset are imminent.
In February 2023, leading Bitcoin Miner Iris Energy said that its hash rate was rising again after a notable downturn at the end of 2022. The company’s self-mining capacity rose from two exahashes per second to five.
A single exahash equates to one quintillion hashes, which represent possible solutions to the complex math equations required to approve and confirm a Bitcoin transaction.
According to figures from Glassnode, BTC's price rise above USD 20,000 helped push the average Bitcoin miner back into the black, even taking into account the hefty costs of operating a mining machine.