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Almost $1 Billion Worth of Bitcoins Stuck in Transaction Backlog

Last Updated March 4, 2021 4:54 PM
Andrew Quentson
Last Updated March 4, 2021 4:54 PM
Almost $1 Billion Worth of Bitcoin Stuck in Transaction Backlog – image from tradeblock

An incredible sum of more than 900,000 bitcoins, worth almost a billion dollars, was stuck  at one point last night, waiting to move, due to limited transaction capacity. At the time of writing, more than 300,000 bitcoins remain stuck.

Luke-Jr, a developer of the Bitcoin Core client and a Blockstream contractor, publicly responded  to the backlog by stating “[j]ust pay a $5 fee and it’ll go through every time.” Jameson Lopp, a BitGo engineer, publicly stated yesterday that if bitcoin’s price hits $10,000 without an increase in transaction capacity, fees  will be $400 based on current data.

Lopp publicly says that one reason for the considerable increase in fees would be because of more user demand for transaction space as “higher price coincides with more adoption, thus more contention for block space.” He further states that users are already being priced out:

“Early sign of users getting priced out [of] bitcoin: services that previously absorbed on-chain transaction fees cease to do so.”

The backlog follows a spike in bitcoin’s price by almost $100 in the past four days which may have been due to new users, and thus more demand for transaction space. It is the biggest backlog yet in value and comes just days after a $250 million backlog.

Bitcoin’s Price Rises by Almost $100 Following an Increase in Global Uncertainty – image from cryptowatch

Some services try to estimate fees so that you don’t have to wait, but this is difficult, if at all possible, for two main reasons. Firstly, if hashrate increases, as is often the case, blocks are found more quickly, thus transaction space increases, but once difficulty re-adjusts, transaction space decreases, causing a backlog.

More worryingly, blocks have a Poisson distribution. That is, on average they are meant to be found every ten minutes, but there could be ten blocks in one hour or none at all, which has happened before. As bitcoin has never operated under full blocks save for the past year or so, with demand for transaction space seemingly considerably increasing recently, we do not quite know what would happen if no block is found in one hour as these backlogs are being created under fairly normal conditions.

There has been a debate over almost two years on how to solve the problem. Three solutions have been presented – Bitcoin XT, which doubles the blocksize every two years, Bitcoin Classic, a last-ditch attempt to increase the blocksize to just 2MB and segwit which increases transaction capacity to only around 1.7MB. All three have seemingly been rejected with segwit having stalled at around 23% for the past two months.

A fourth proposal on the table, Bitcoin Unlimited, is gaining momentum. The grassroots client continues the transaction capacity increase method bitcoin used for much of its existence. Without any centralized direction, miners increased the block limit from 250kb to 500kb in March 2013  to the apparent opposition of Peter Todd and Luke-Jr. That was followed by an increase to 750kb and then finally to 1MB. With Bitcoin Unlimited, they can increase it in roughly the same manner to 2MB or 4MB in line with demand as well as the progress of technology.

Bitcoin Unlimited About to Surpass Segwit – image from nodecounter

Some bitcoin developers are against a maxblocksize increase, even though it was long suggested by Nakamoto. Luke-Jr has even recommended a decrease of current transaction capacity by 70%. He has further threatened to PoW fork bitcoin if maxblocksize is increased. A threat that has seemingly made established miners (Bitmain, F2Pool, BW.com and HaoBTC) hesitant about upgrading to Bitcoin Unlimited.

But, new miners are entering the scene. Most prominently, ViaBTC and BTC.TOP, who have quickly gained around 10% and 8% of the network’s hashrate respectively. The founders of these two pools both have a technical background. Haipo Yang, ViaBTC’s founder, used to work at Tencent and has  “a wealth of experience in the development of distributed, highly concurrent network servers.” Jiang Zhuoer is a former employee at China Mobile in Shanghai, the world’s largest mobile phone operator, where he led a 13-men team working on Data Warehouse and Big Data before establishing BTC.TOP.

They both appear to be calling Luke-Jr’s threat bluff with Zhuoer seemingly making a checkmate move. He told CCN.com in an interview:

“We have prepared $100 million USD to kill the small fork of CoreCoin, no matter what POW algorithm, sha256 or scrypt or X11 or any other GPU algorithm. Show me your money. We very much welcome a CoreCoin change to POS.”

Some have suggested that there could be two chains with some miners continuing on the older chain or the mining algorithm could be changed entirely, which would lead to a battle over which coin retains the name of bitcoin especially as r/bitcoin has instituted a policy of strict censorship and banning of bitcoiners in favor of increasing the maxblocksize, leading to the creation of r/btc, a free public discussion space for the digital currency.

But, if the smaller and very much insecure chain, whether PoW fork or some miners remaining on the limited capacity chain, is attacked, then it could be made inoperational, thus allowing the network to smoothly upgrade. Vitalik Buterin, founder of Ethereum and the Bitcoin Magazine, publicly stated  that a “51% spawn camping attack is quite feasible.” It has been illustrated by Luke-Jr himself who successfully carried out such attack on a small altcoin while controlling the Eligius mining pool.

If the miners latest move – who have long asked for an increase in maxblocksize, even publicly formally agreeing to 8MB – is indeed a checkmate, remains to be seen as the latest proposal now standing, Bitcoin Unlimited, awaits the decision of the free market on how to solve these now somewhat frequent backlogs.

Featured image from Shutterstock.