Bitcoin’s hashrate has already dropped more than 40 percent this month. The network remains unaffected – but reveals a very worrying trend of decreasing usage and usability.
Bitcoin’s hashrate dropped another 16 percent yesterday. This term means the number of hash operations the miners produce each day to find valid blocks. This means that this rate has dropped by almost 45% since the beginning of March.
After reaching an all-time high in early March, the hashrate plummeted. Source: Blockchain.com
In itself, this is the normal course of events. Miners invest in new mining chips and energy to find bitcoin blocks and receive the reward from the block reward. If the Bitcoin price drops, the miner’s reward will also decrease. Mining is becoming less lucrative and miners are shutting down their machines. The case was violent, but only followed the equally violent fall in price.
However, the decrease in the hashrate also has consequences for the network. The fewer hashes the miners produce, the longer it takes them to find a new block. This increases the interval between the blocks. The network is slowing down, capacity is decreasing – at least temporarily until the difficulty of mining adapts again.
Anyone who tried to send a Bitcoin transaction last night may have experienced this: The fees have skyrocketed, and even those who paid a lot more than in the afternoon could sometimes have to wait a long time until the transaction was blocked has achieved.
Today, almost every transaction can be managed in one block with very low fees. The system apparently regulates itself. That is good news.
The bad news
However, a closer look reveals some unpleasant side effects. You could say we get the worst from all worlds.
The number of daily transactions is falling. That’s why the traffic jam in the MemPool cleared up so quickly. Fewer people use Bitcoin. With less than 260,000 daily transactions on a weekly basis, this value has continued a downward trend since May 2019, has reached a 12-month low and is at the same level as in mid-2017. The fact that the situation has normalized again overnight is a consequence of a very unfavorable trend. That is the first bad news.
The number of daily transactions according to Blockchain.com.
The second bad news is that user experience is deteriorating despite decreasing usage. Anyone who submitted a transaction last night had to pay more than $1 to have a chance to make it into the next block. Such suddenly rising fees, combined with often excruciatingly long waiting times for confirmation, are not uncommon, but happen every few weeks.
Such inconvenience is difficult for users to explain. They are also hardly predictable, which downgrades Bitcoin as a means of payment. Imagine your credit card fees skyrocketing out of the blue. If you get unprepared for such a surge in fees, you will have an extremely bad user experience and may write off Bitcoin as a means of payment.
The MemPool in megabytes. Source: Jochen Hoenecke’s MemPool visualization
The block size limit is responsible for this stagnation in the use and deterioration of the user experience, which with 1-1.5 megabytes ensures that Bitcoin actually operates continuously at the capacity limit. The economic idea behind it is that it needs a “market fee” that guarantees the miners’ income in the long term.
However, this plan obviously does not work. This is the third bad news. The price you pay – the worsening of the user experience and the stagnation of daily transactions – does not result in the desired result.
Miners’ fees have not really increased over the past few years. They are even at a lower level than in 2017. There are occasional peaks, but they occur so randomly that they do not offer predictable income for the miners.
Miners’ earnings from fees, according to Blockchain.com.
As soon as there is such a spike, users apparently largely decide to stop using Bitcoin – hence the decreasing use – or to sit it out with low fees. The result is that the fees fall back to a normal, rather low, level after only a short time. In this metric too, Bitcoin fell back to mid-2017. The “market fee” thus hardly contributes to the income of the miners – but worsens the user experience massively.
So you can see that Bitcoin has handled the fall of the hashrate well. However, it shows a general trend of a decreasing use and usability of the network.
Subscribe To our Newsletter
And receive the Bitcoin Whitepaper Poster