As interest in Bitcoin and other cryptocurrencies grows, scaling issues have begun to take the spotlight. These issues have led to two Hard Forks already this year, with a third fork being narrowly avoided.
Because of the excitement generated by the forks and the new currencies they create, such as Bitcoin Cash, Bitcoin’s price has risen dramatically, despite a number of rapid falls. Through much of October and the beginning of November, Bitcoin consistently broke new all-time highs, peaking around the $8000 mark. But with the announcement that Segwit2X would not take effect as planned, a flurry of activity surrounded Bitcoin and Bitcoin Cash, ultimately leading to a rapid price drop and network congestion for Bitcoin.
Blockchain congestion is not a new phenomenon. Even in February 2016, lengthy Bitcoin transaction times were an annoyance to Bitcoin users. While there are plans to fix this issue through various upgrades, including Segwit and Segwit2x, it seems that Bitcoin’s Blockchain is still susceptible to major slowdowns and delays.
What does this mean for everyday users? For one, it can mean a lot of frustration. If you were looking for the right time to buy Bitcoin, the recent price drop may have seemed like the perfect opportunity. But prospective Bitcoin buyers may have found that acquiring Bitcoin was easier said than done.
At one point, over $700 million worth of Bitcoin was stuck in the Blockchain, awaiting confirmation. Luckily, in most cases, if you purchased Bitcoin from a source but your transaction was not confirmed quickly, those bitcoins are still coming.
Why is my Bitcoin transaction taking so long to process?
If you tried to send or receive Bitcoin this weekend, there’s a good chance your transaction was either delayed, had a hefty fee, or more likely, both.
To understand why this happened, you first need to understand how the Bitcoin Blockchain works. When a Bitcoin transaction is created, it needs to be included in the ledger. Each block that is mined includes several transactions that are added, and then confirmed, as more blocks are mined.
Space on these blocks are limited, so when tens of thousands of transactions are being sent each hour, there isn’t enough place for each transaction to be included in a single block, which causes a backlog.
In return for mining blocks, which in turn confirms Bitcoin transactions, miners get two separate rewards: the Bitcoin reward and the mining fees of all the transactions they include in the block. While the Bitcoin reward is static, mining fees can vary by transaction. This means that it is in a miner’s best interest to include transactions that offer the highest fees.
The graph in this Tweet shows the average Bitcoin fee since the hard fork that created Bitcoin Cash at the start of August. Over the weekend, the median fee was over $5, a new all-time high.
— Blockchair (@Blockchair) November 11, 2017
This creates a type of bidding war for Bitcoin transactions as it becomes more and more expensive to have your transaction included in a block. In most cases, even transactions with low fees will be confirmed within three days, but some transactions may never be confirmed.
What caused the heavy traffic?
As excitement around Bitcoin Cash grew, so did its value, gaining over 400% in less than a week to hit $2500. This caused the price of Bitcoin to drop as investors sold Bitcoin to buy Bitcoin Cash.
The flurry of activity meant a record amount of Bitcoin transactions were being sent, clogging up the network and adding to the price volatility. Eventually the price of both Bitcoin and Bitcoin Cash stabilized after a scheduled change to the Bitcoin Cash software was implemented.
Before the upgrade, Bitcoin Cash was more profitable at times to mine than Bitcoin, but the mining process was less stable in terms of how long it would take to mine a Bitcoin Cash block. After the upgrade, the hope is that Bitcoin Cash blocks will be mined at a more predictable pace, even though they are again less profitable to mine than Bitcoin.
How can I avoid delays when the Blockchain is congested?
Blockchain congestion only affects Bitcoin transactions that go through the Blockchain itself. Many cryptocurrency exchanges let you hold Bitcoin in a trading account, so when you exchange from Bitcoin to or from other currencies, it still happens instantly.
This is possible with Payza as well: you can convert and hold Bitcoin in your account, so when you’re ready to exchange, you can switch from Bitcoin to USD instantly. With Payza’s vast network, you can also instantly send Bitcoin to other Payza members, bypassing the Blockchain and limiting your transaction fees. Payza’s low 1.2% fee to send Bitcoin to other members can be much lower than the mining fees for small transactions, which sets fees on the size in bytes of a transaction as opposed to its value. You can send $400 USD equivalent of Bitcoin using Payza and pay under $5.00 in fees.
Keep in mind as well that Blockchain congestion is a temporary issue, so if you don’t need to make your transaction immediately, it’s usually best to simply wait for a less turbulent period before sending the transaction. This will lower your fees as well as your stress level, since the transaction will likely confirm much quicker as well.
If you use Payza to purchase Bitcoin using the Withdraw Funds option, that is, exchanging your Payza Balance into Bitcoin and sending it to an external wallet, we suggest making that exchange in your Payza account first and then sending the Bitcoin to your wallet when there’s less congestion.
Bitcoin transaction delays can be a frustrating issue, but understanding what’s behind these delays gives you a better understanding of how Bitcoin works. For helpful articles about Bitcoin and other cryptocurrencies, be sure to subscribe to the Payza Blog and follow us on Twitter and Facebook as well.