Explainer: Why does it take so long and cost so much to trade bitcoin?
The average transaction fee has jumped from 14 US cents in early 2016 to US$16 at the start of this year.
PUBLISHED : Sunday, 07 January, 2018, 12:33pm
UPDATED : Thursday, 18 January, 2018, 3:02pm
Related topics
The soaring price and popularity of bitcoin has had a less desirable effect – congestion on the network that supports bitcoin has made trading of the cryptocurrency time-consuming and expensive.
Since the strength of bitcoin lies in its security, a bitcoin transaction requires six confirmations by a decentralised network before it is processed.
However, the network is designed to only process between three and seven transactions per second. As a result of a surge in bitcoin trading, the average time for one confirmation now ranges from 90 minutes to more than a day.
China plans to deter bitcoin miners by curbing electricity use
Transactions initially go into the “unconfirmed transactions pool”, which includes all pending deals. If bitcoin users want to have their transactions processed first, they have to outbid each other to gain priority, which consequently inflates the average fee.
The average fee increased from 14 US cents per transaction at the beginning of 2017 to US$1.4 in October, peaking at US$37.49 on December 21 before falling to US$16 on January 1, according to data by bitcoinfees.info.
But why are users bidding to have their transactions confirmed first?
Explainer: Key questions you need answered about bitcoin
The answer is volatility. With its price changing by hundreds or even thousands of dollars in a matter of minutes, there is a huge financial incentive to rapidly trade bitcoin.
Another factor that has been driving up the fee is that it is paid in bitcoin. As the value of bitcoin has increased more than 1,300 per cent since the start of last year, the transaction fee too has increased proportionally.
On top of the transaction, users are also charged a processing fee and a network fee by bitcoin payment service providers such as BitPay and CoinGate.
For instance, BitPay charges users a 1 per cent processing fee per transaction. BitPay meanwhile charges users a network fee, which it pays bitcoin miners to move funds from an individual customer’s bitcoin wallet address to a bitcoin exchange, where it can be converted into hard currency.
Most Popular
Viewed
- 1
![The Addis Ababa-Djibouti freight railway has cost China’s state export credit insurer close to US$1 billion in losses. Photo: Handout]( "The Addis Ababa-Djibouti freight railway has cost China’s state export credit insurer close to US$1 billion in losses. Photo: Handout")
- 2
![Chinese economy slowing faster than expected, worst yet to come, analysts say]()
- 3
![Many people who bought flats in the last couple of months have seen their value decline by as much as 20 per cent
Negative equity vanished from Hong Kong’s property market in early 2017]( "Many people who bought flats in the last couple of months have seen their value decline by as much as 20 per cent
Negative equity vanished from Hong Kong’s property market in early 2017")
- 4
![China’s jet engine technology is estimated to be at least 20 years behind global leaders. Photo: Imaginechina]( "China’s jet engine technology is estimated to be at least 20 years behind global leaders. Photo: Imaginechina")
- 5
![Illustration: Craig Stephens]( "Illustration: Craig Stephens")
Shared
- 1
![The Addis Ababa-Djibouti freight railway has cost China’s state export credit insurer close to US$1 billion in losses. Photo: Handout]( "The Addis Ababa-Djibouti freight railway has cost China’s state export credit insurer close to US$1 billion in losses. Photo: Handout")
- 2
![Andrew Wong, managing partner of crypto exchange platform IDCM, responsible for looking to network across aspects of blockchain, cryptocurrency and entrepreneurship. Photo: Abdela Igmirien]( "Andrew Wong, managing partner of crypto exchange platform IDCM, responsible for looking to network across aspects of blockchain, cryptocurrency and entrepreneurship. Photo: Abdela Igmirien")
- 3
![Chinese economy slowing faster than expected, worst yet to come, analysts say]()
- 4
![China’s jet engine technology is estimated to be at least 20 years behind global leaders. Photo: Imaginechina]( "China’s jet engine technology is estimated to be at least 20 years behind global leaders. Photo: Imaginechina")
- 5
![Many people who bought flats in the last couple of months have seen their value decline by as much as 20 per cent
Negative equity vanished from Hong Kong’s property market in early 2017]( "Many people who bought flats in the last couple of months have seen their value decline by as much as 20 per cent
Negative equity vanished from Hong Kong’s property market in early 2017")
Commented
- 1
![Liu Jiaqi, the Chinese national who was deported from Kenya after a video of him making a string of racist remarks was widely shared on social media. Photo: Department of Immigration Services Kenya]( "Liu Jiaqi, the Chinese national who was deported from Kenya after a video of him making a string of racist remarks was widely shared on social media. Photo: Department of Immigration Services Kenya")
- 2
![‘Three Lees is too much’: Goh Chok Tong on leading Singapore after Lee Kuan Yew]()
- 3
![A book published by Hong Kong University Press introducing the Hong Kong Basic Law, the city's mini-constitution, during the Hong Kong Book Fair in July. Photo: EPA-EFE]( "A book published by Hong Kong University Press introducing the Hong Kong Basic Law, the city's mini-constitution, during the Hong Kong Book Fair in July. Photo: EPA-EFE")
- 4
![No big deal: Trump-Xi talks at G20 unlikely to produce breakthroughs, analysts say]()
- 5
![China hopes mutual respect will help reach deal to end US trade war]()
You may also like
26 facts to know about your spine – to keep you healthy and pain free
In partnership with: Hong Kong Adventist Hospital
CINDY CHAO's Peony Brooch hailed at Masterpiece London
Sponsored by: CINDY CHAO The Art Jewel
Comments: