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- China’s Xinjiang and Sichuan provinces combined constitute more than 50% of Bitcoin’s overall hash rate.
- The average fee per BTC transaction neared $60 when the 2017 bull run roughly touched $55.
- Bitcoin’s mining difficulty will be adjusted in early May; however, even that won’t improve much.
The Bitcoin transaction fee is now soaring heights like never before, all while the network witnessed a massive decline in hash rate. Over the weekend, while the token prices were dwindling, BTC observed the most prominent daily drop in the network’s hash rate since late 2017.
China’s Power Outage Caused Hash Rate Drop
A significant reason behind BTC’s hash rate decline was the massive power outage in China’s major bitcoin mining farms in Xinjiang. Dovey Wan, the founding partner of Primitive Ventures, revealed China’s Xinjiang and Sichuan provinces combined constitute more than 50% of Bitcoin’s overall hash rate.
Hash Rate Drop Affects Transactions
The shutdown of a large portion of hash rates results in slackening network-mined blocks. And slow speed means only a handful of transactions get confirmed on the blockchain, while BTC’s mempool, where all valid transactions wait to be approved, overflows with pending transactions. The dropping rates of blocks mined led to fewer transactions, which, compared to the relatively higher demand, caused ascending transaction charges.
When mining a block, miners go for the transaction with the highest fees attached for a direct economic incentive. The sluggish hash rate also led the total miner revenue to reach an all-time high.
Difficulties in Bitcoin’s Difficulty Adjustments
The platform would be incentivizing more miners to join the network to avoid any such setback in the future. The increased participation is supposed to increase the hash rate and enhance network security. But is it enough? Mining difficulties are proportional to the rates of blocks mined; irrespective of the number of miners, it depends on whether the average target of 2,016 blocks mined in 10 minutes gets better or deteriorates.
Bitcoin’s mining difficulty is expected to be adjusted in early May. However, to rectify the hash rate drop alone, Bitcoin requires a 30% adjustment, while it can only adjust 25% difficulty. Implying, either it’ll use all its 25% on hash rate and still lag by 5% or debase adjustments in some lesser prominent areas to manage the overall adjustments, including hash rates. Guess we’ll have to wait and see.
Bitcoin’s All-Time High Transaction Fees
Thomas Heller, the Chief Business Officer at Compass Mining, suggested the accompanying hike in transaction fees was prompted by a few factors, too, i.e., a combination of ASIC shortages and Bitcoin’s colossal price rise outpacing difficulty.
BitInfoCharts data shows the average fee for a BTC transaction has reached nearly $60. Even the 2017 bull run roughly touched $55. Compared to the near $15 on April 11, the Bitcoin transaction cost shot up by 300%.
Optimistic End of the Damage
Even amid all this, new addresses and daily active addresses saw an uptick on the network. Additionally, the network’s high fees could lead to more development of the Lightning Network, a second-layer scaling solution for Bitcoin. It uses micropayment channels to scale blockchain’s capability to conduct transactions more efficiently. Most crypto exchanges do not yet support the solution, but the excellent transaction speed-up might change their stance in the upcoming future.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
