Bitcoin Fees Drop After Spiking to $240 Post-Halving, But Can Other Blockchains Cash In With Cheaper Fees?
The average transaction fee for Bitcoin decreased after reaching an all-time high the previous day. | Credit: Pixabay
Key Takeaways
- Post-halving, Bitcoin transaction fees have seen a significant decrease.
- Similarly, the floor price for the Runes NFT collection has also dropped.
- The anticipated increase in transaction fees through Runes has not materialized as expected.
On Sunday, the average transaction fee for Bitcoin decreased after reaching an all-time high the previous day, following the network’s fourth halving.
The average fee per Bitcoin transaction fell to $34.80 on April 21, down from a record $128.45 after the halving.
However, the spike in fees could, potentially, have caused people to look to other blockchains.
Bitcoin Network Fees Spike 10x During Halving, Return to Normal
The average transaction fee is the total transaction fees collected divided by the number of transactions processed. For instance, after the recent Bitcoin halving event, the average transaction fee spiked because of increased network activity. Once the activity leveled off, the price went down and stabilized.
On April 20, 2024, the fees surged to a high due to a significant increase in network usage. This coincided with new blockchain innovations like the Runes protocol.
After the halving, the average transaction fee was recorded at $128.45 on the day of the event and then dropped to $34.86 the following day, showcasing a significant reduction as the initial rush settled down. This dynamic change in fees is indicative of how Bitcoin fees can be influenced by network congestion and major events such as halvings or protocol launches.
To manually calculate transaction fees, one needs to know the average fee rate, which is expressed in satoshis per byte. This fee is essential for transactions to be processed by miners on the network. Users can pay a higher fee for quicker confirmation or a lower fee if the transaction is not time-sensitive.
Bitcoin Miner Profits Plunge Below Pre-Halving Levels
The hashprice index, a metric developed by Luxor to measure the earnings a miner can expect from a given amount of hashrate, declined from $182.98 per hash/day to $81, falling below pre-halving levels.
Bitcoin miners braced for a significant reduction in revenue due to the halving. Meanwhile, the launch of Casey Rodarmor’s Runes protocol — aimed at creating fungible tokens on Bitcoin — was supposed to counteract this by generating increased on-chain activity.
Will Other Blockchains Profit?
If you want to understand the fundamental business model of a public blockchain, you need to observe its financial operations in terms of revenues and costs. Public blockchains generate revenue primarily through transaction fees. Their primary expense is the cost of securing the network, usually done through rewards or issuance to miners or validators. The following formula expresses the relationship.
Net Profit = Transaction Fees – Security Costs
This formula allows one to evaluate the financial health of blockchain operations. A blockchain that incurs higher costs for security than it earns in transaction fees operates at a deficit, indicating a potential sustainability issue. Conversely, if transaction fees exceed the cost of security, the blockchain is financially sustainable.
Blockchain Fees – Comparisson
Ethereum (ETH)
Ethereum’s transaction fees are based on “gas,” which powers computations and transactions. Before August 2021, a first-price auction set the fees.
The EIP-1559 update introduced a new model where fees are calculated by multiplying the gas limit by the base fee (minimum price per gas unit, adjusted by demand) plus a tip (priority fee). The base fee is burned, removing it from circulation.
Bitcoin Cash (BCH)
Bitcoin Cash (BCH) is a derivative of Bitcoin (BTC), created through a hard fork. with the goal of enhancing the cryptocurrency’s functionality as a peer-to-peer electronic cash system. One of the primary distinctions between Bitcoin Cash and Bitcoin is their fee structure. BCH is designed to maintain very low transaction fees, typically less than a penny, which contrasts with Bitcoin’s median transaction fee, which has generally ranged from $1 to $15 since 2020.
Bitcoin Cash’s transaction fees are lower because of its block size. BCH has a maximum block size of 32 MB, compared to Bitcoin’s 1 MB. This larger block size allows Bitcoin Cash to process a higher volume of transactions per block.
Litecoin (LTC)
Litecoin (LTC)‘s fee structure designed to be more user-friendly than Bitcoin. The Litecoin network prioritizes transactions based on a metric called “coin days destroyed”. This is calculated by multiplying the number of coins in a transaction by the number of days those coins have been held, then dividing by the transaction size in bytes. Transactions exceeding a certain priority level can be processed without any fees.
A nominal fee comes into effect for transactions that do not meet this priority threshold. Currently, the fee is 0.001 LTC per kilobyte of transaction data. However, there are plans to reduce this to 0.0001 LTC per kilobyte in the upcoming software update.
Dogecoin (DOGE)
Dogecoin has updated its fee structure to reduce the cost of transactions and motivate node operators to forward transactions with lower fees to miners. This new pricing model has come in via several software updates. Key changes include a substantial reduction in the minimal relay fee from 1 DOGE down to 0.001 DOGE and a lowering of the dust limit to 0.01 DOGE to promote microtransactions.
Additionally, there is a default fee rate of 0.01 DOGE for block inclusion. This encourages miners to prioritize transactions in the earliest possible blocks, while also helping to deter spam transactions.
Solana (SOL)
Solana’s fee system includes a base fee and a per-signature fee. The base fee, set at 5000 lamports (equivalent to 0.00005 SOL), covers storage costs for each transaction. Additionally, a per-signature fee, based on the number of signatures in a transaction, applies. This is the number of signatures multiplied by the prevailing fee rate. This rate varies with network congestion and users can monitor it with the Solana Command Line Interface (CLI) or the Solana JSON-RPC API.
Polygon (MATIC)
Polygon’s fee structure incorporates two primary components: the StdTx and the Bor Fee Model. The StdTx, part of the Heimdall layer, allows developers to build blockchain applications on Polygon without incurring transaction fees for every operation.
This system supports only a limited range of transaction types. For instance, end users are not able to deploy contracts on Heimdall, reinforcing the fixed fee model used in StdTx.
Runes NFT Prices Plummet
However, in the days following the halving, the market response has been less favorable than anticipated.
The floor prices for the runestone NFT collection have plummeted nearly 50% in the last 24 hours to about 0.037 BTC.
Conversely, ordinal collections such as Bitcoin Pullets and NodeMonkes have experienced gains , rising 11% and 8% respectively.
It’s important to note that while these ordinal collections do generate significant transaction fees, they haven’t proven to be the robust revenue source many had hoped Runes would be.
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