It’s no secret that bitcoin transaction fees have skyrocketed over the past several years due to increases in both bitcoin’s price and usage.
Exactly one year ago, the median bitcoin transaction fee was approximately $0.19, according to BitInfoCharts; today, it is more than $10, and at one point in December it peaked above $34.
While second-layer technologies like the Lightning Network (LN) are expected to move many small value transactions off-chain and dramatically reduce fees, they are not yet production ready, and the anticipation of their future deployment is little comfort to many users who are beset by high transaction fees right now.
In the meantime, developer b10c has released transactionfee.info, a service to help ordinary users optimize their transactions and hold bitcoin exchanges and other services accountable for failing to optimize theirs.
To use the tool, just input a transaction ID and identify whether the payment was sent from a particular exchange or service. The service will analyze the transaction for three factors: SegWit inputs, batching, and multisig inputs.
SegWit — short for Segregated Witness — was activated on the bitcoin network last year and eases transaction fees, but many users do not realize it requires them to use SegWit addresses, which may or may not be available in their current wallet software.
Batching allows users to send multiple payments in the same transaction, reducing the cost of each individual payment. While largely impractical if you only make occasional transactions, batching can dramatically reduce bitcoin transaction fees for exchanges, services, and high-volume users.
Transactions that spend multi-signature inputs, on the other hand, have greater fees, so users should avoid enabling multisig in their hot wallets.
Let’s see the fee optimization tool in action.
Take this transaction, chosen at random from block 505596. The sender transacted an estimated $12.89 in bitcoin (excluding funds sent to a change address) and paid $19.20 in fees. Ouch!
According to transactionfee.info, the sender could have saved 87 percent in fees if they had optimized their transaction by spending SegWit inputs and batching 20 outputs together, reducing the transaction fee to approximately $2.49.
This potential savings is remarkable, particularly considering that the sender also paid an astronomical 808 satoshis/byte, which is almost triple the estimated necessary fee to confirm a transaction within the next block, according to Earn.com’s mempool analyzer.
Had the sender both fully optimized the transaction and paid a more reasonable satoshi/byte fee, this payment could have been completed for about the same fee that PayPal charges to process a similarly-sized payment.
Featured Image from Pexels