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“Batching” Bitcoin Transactions Makes Blockchain More Efficient

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"Batching" Bitcoin Transactions Makes Blockchain More Efficient

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Batching multiple Bitcoin payments into one transaction is becoming a popular trend. The practice makes the blockchain more efficient by reducing the amount of data needed to send each payment, which in turn reduces transaction fees for each payment. As more people batch their payments, the block space is available for other transactions, allowing more Bitcoin transactions per block while reducing fees for everyone.

A simple and loose definition of a batched Bitcoin transaction is a transaction with 3 or more outputs. In a typical Bitcoin transaction, there are 2 outputs, the payment going to the receiver and the change output which goes back into your wallet. Bitcoin change output works the same way as getting the change at a grocery store when you hand 20 USD to the cashier for 12 USD worth of goods and she hands back 8 USD of change. Just like these transactions are discrete in the physical world, they are discretely represented on the blockchain when using Bitcoin as well.

A typical transaction with one payment output uses 230 bytes, but a batched transaction with 2 payment outputs uses 260 bytes. If these were separate transactions they would use 460 bytes; the savings in memory space when batching are obvious from this example. It is possible to include as many payments as you want in a single transaction. Typical batched transactions have between 3 and 40 payment outputs, but the record is 13,107 payment outputs.

The Bitcoin fee is a direct function of how much data is in the transaction, and therefore batching saves money on the fee. Batching has become much more popular recently after the transaction fee crisis of late 2017 when Bitcoin hit record prices near 20,000 USD. There were more Bitcoin transactions than ever before, causing transaction fees to rise to nearly 60 USD.

This made Bitcoin unusable as an everyday currency, and there was much outcry across the Bitcoin world to find a solution, such as batching. Several major Bitcoin exchanges including Bitstamp, Bitfinex, and Binance began to batch their transactions after being pressured by the public.

The fee crisis resolved itself temporarily when Bitcoin’s price collapsed and transaction volume dropped along with it, but the percentage of batched transactions has been steadily rising since it saves money regardless. Currently, only 12% of all transactions are batched, but 30-70% of all Bitcoins volume is in batched transactions.

It will be important for users to batch their Bitcoin transactions in the future to optimize the blockchain and help keep fees lower, since inevitably fees will be on the rise again. Segregated Witness (SegWit) is another feature that is being implemented by Bitcoin users to reduce fees and works well with batching.

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