Bitcoin transaction frequency has increased roughly 50% since April 2018, yet during the same period of time, transaction fees have not risen. This is likely a demonstration of how SegWit and transaction batching have helped make Bitcoin more scalable.

Estimating daily transaction frequency is somewhat difficult since there is a weekly oscillation of Bitcoin transaction frequency that causes daily frequency to rapidly change. Eyeballing the chart, there were on average 165,000 transactions per day at the beginning of April. This has steadily increased since then to 245,000 in late October 2018, a 48.5% increase. This is just a rough estimate but the point is Bitcoin transaction frequency has just about grown by half its April numbers.

Simultaneously, transaction fees remain close to zero and are not being impacted by increasing transaction frequency. Currently, the fee for confirming within several blocks is less than USD 0.25 per transaction, and this has been the case since early July. In general, since April, transaction fees have actually been decreasing, which may be a sign that SegWit and transaction batching adoption is increasing.

SegWit, short for segregated witness, has a block size limit of 1 million units, rather than bytes like the old system. Signature data, called the witness, is separated from the Merkle Tree and only counts as 1/4 of a unit. This has caused the average maximum block size to increase from 1 mb to 1.2-1.3 mb, with some record block sizes in excess of 2 mb. Allowing more transactions into each block reduces transaction fees, and SegWit adoption is rapidly increasing.

Transaction batching is usually what causes blocks to reach sizes greater than 1.2-1.3 mb. Batching works by merging several Bitcoin transactions into a single one, which saves space. Thousands of transactions can be merged into one transaction via batching.

Looking at Bitcoin block size gives a good indication of how close the network is to reaching maximum capacity, at which point transaction fees will increase. The average daily block size is extremely volatile, and it is hard to estimate an average block size for a week or month but in general, there is an uptrend since April from roughly 0.6 mb to 0.95 mb currently.

Average block size would have to consistently be above 1 mb every day for a surge in transaction fees to occur, unlike the current conditions where average block size is far below 1 mb on most days. The last time block sizes were consistently above 1 mb was in February 2018 on the tail end of the transaction fee crisis which saw fees in excess of USD 30 in December 2017.

At the rate transaction frequency is increasing on the Bitcoin network, eventually, blocks will be filled consistently. However, users will have a bigger incentive to use second layer solutions like Lightning Network at that point, which should prevent a fee crisis.

 

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