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Block size and transaction fees

The block size describes the absolute number of transactions that can fit into each block. An ongoing debate within bitcoin’s extended ecosystem, notably BCHABC and BCHSV, pertains to whether bitcoin core’s limited block size limits the network’s utility as a payment network.

At Bitassist we view the Bitcoin Network as a public decentralized settlement infrastructure, rather than a payment network per se. As such, the size of the block is not as important as the value of transactions - which can be aggregated from layer 2 activity – as we will see with the growth of the lightning network.

Regardless of our view on the bitcoin network, it is interesting to observe the relationship between the block size and the average transaction fee.

Data:; Analysis: Bitassist Research & Analytics

The bitcoin core block size increased to an all-time high in May of 1.24MB. While we might expect larger blocks to equal lower fees, since there is more space to compete over, the average transaction fee has also risen sharply through Apr & May’19 to a yearly high of $4.6 per tx. This increased fee suggests that entities are continuing to compete for the limited space within the bitcoin blockchain. While this increase in tx fee does not support the case for bitcoin as a digital currency, it does help to strengthen the overall network. Ultimately the Bitcoin network will require high fees in order to continue incentivising the miners as the block reward reduces.

While the historic use case for the bitcoin network was for transferring value on-chain, we are moving into a new era where the chain is used for settlement of higher value transactions. The smaller value transactions are increasingly being handled off-chain or on side-chains and settled periodically. One example of this is the lightning network which we will cover in the following section.

Bitassist is a research and advisory that translates complex blockchain data into meaningful insights. Click here to stay up to date with the latest cryptoasset market insights.