At least the transaction fees on the network that have registered a significant drop in 2021. This negative fee development – which is positive for users – can be explained by a number of factors.
Falling Bitcoin transaction fees: increased adoption of the Lightning network and decongestion of the mempool
2021 saw an explosion in Bitcoin’s price, and conversely a significant drop in transaction fees on the network. According to YCharts data, the average BTC transaction fee saw a 57.97% drop from $4.40 to $1.80 in 2021. These fees had reached a record high of $62.8 per transaction on April 21, 2021, as miners in China suffered power outages, while at the same time demand for bitcoin exploded. This context led to a “block shortage”.
This decrease in transaction fees over the year can be attributed on the one hand to a development of the Lightning network, known for its faster and relatively cheaper transactions. It can also be explained by an average decongestion of the mempool, which contains transactions awaiting confirmation. An increase in the number of these transactions usually leads network users to pay more, to ensure that their transactions do not get stuck in the mempool.
Keeping your bitcoins cool: less movement, less network fees
The recent drop in transaction fees on Bitcoin may also be due to a drop in the average number of daily transactions over the past few months, from 350,000 transactions per day in early 2021, to 213,000 to 250,000 units currently. Transaction fees have also seen a drop as traders and bitcoin holders move their holdings less in recent months. In particular, HODlers are keeping their bitcoins in a cold wallet, waiting for much higher price levels.
Bitcoin is not the only one to see a decrease in transaction fees in 2021. Ethereum (ETH) transaction fees had peaked at $69.92 on May 12, 2021. It currently stands at $4.72.
Is the evolution of transaction fees on the network negatively correlated to the evolution of the bitcoin price over the long term? No. The increase in the price of bitcoin is making it more and more a reserve asset than a transactional currency, and a decrease in the number of movements on the network theoretically leads to a decrease in transaction fees. How long will HODlers keep their bitcoins warm – or cool? Bitcoin has stood up to its end-of-November 2021 date set by PlanB, a gap that for now has not ended the 6-figure hopes, nor the digital gold status of the doyenne of cryptocurrencies.