Bitcoin hashrate falls. Network continues as before.
miner from Bolivia. Image from “M M” via flickr.com. License: Creative Commons
Bitcoin's hashrate is already more than this month percent fell. The network remains unaffected – but reveals a very worrying trend of decreasing usage and usability.
Bitcoin's hashrate is again yesterday at 16 percent decreased. This term means the number of hash operations the miners produce each day to find valid blocks. This rate has been close to 45 percent decreased.
In itself, this is the normal course of things. 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 should 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 for it to come Transaction in one block.
The jam on the blockchain has abated as suddenly as it came about. Today, almost every transaction can be managed in one block with very low fees. The system apparently regulates itself. That is the good news.
The worst from all worlds
However, a closer look reveals some unpleasant side effects. You could say we get the worst of all worlds.
The number of daily transactions decreases. 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 average, this value continues a downward trend since May 2019, is on a 12 – Monthly low and at the same level as Mitte 2017. The fact that the situation normalized again overnight is a result of a very unfavorable trend. This is the first bad news.
The second bad news is that user experience is deteriorating despite decreasing usage. This is the second bad news. Anyone who submitted a transaction last night had to pay a good euro 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.
It is difficult for users to explain such inconveniences. They are also hardly predictable, which downgrades Bitcoin as a means of payment. Imagine your credit card fees skyrocketing out of the blue. Anyone who gets unprepared for such a surge in fees will take an extremely bad user experience with them and maybe write off Bitcoin as a means of payment.
Responsible for this stagnation in the use and deterioration of the user experience is the block size limit, 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 “fee market” 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 lower than 2017. There are occasional peaks, which occur so randomly that they do not offer a predictable income for the miners.
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 has fallen back to the middle level 2017. The “fee market” thus hardly contributes to the income of the miners – but worsens the user experience massively.
So you can see that Bitcoin has survived the fall of the hashrate well. However, it shows a general trend of decreasing use and usability of the network.