Bitcoin’s New Problem: High Fees

The speed of cryptocurrency is a lure in terms of getting transactions done. So is the security.

The price, at least for Bitcoin? Not so much — not anymore.

As The Wall Street Journal reports, while Bitcoin’s initial design may have been predicated on cheapness, the status quo has changed when it comes to transactions. In fact, the attendant costs of buying and selling the digital currency have risen so much, they are proving rather controversial.

The cost to transact, according to the WSJ, now stands at $5 per buy or sell order. The $5 level was and is the highest seen in the eight years that Bitcoin has been trading. Compare that to the nickel per transaction levied two years ago, and the uproar over raised fees makes sense.

The total value of the currency is now $40 billion, and yet the high fees in place may limit the ways in which Bitcoin can be used. By way of example, the WSJ stated that buying a cup of coffee with Bitcoin is a less-than-optimal use of the cryptocurrency if the transaction fee is greater than the cost of the coffee itself.

Conversely, scale does matter. A transaction fee of $5 is unlikely to deter a $10,000 transfer. Those fees are carried by users rather than merchants, even as the number of transactions has risen to 269,000 monthly from a few years ago. Transaction speeds are still limited at seven per second, making efficiency for large-scale transactions a persistent issue.

One way to have transactions processed more quickly by the Bitcoin miners, though? Pay a higher fee.

As demand for Bitcoin has grown, so has the debate over how to resolve bottlenecks tied to limited production. In these cases, small transactions can fall by the wayside and take days to resolve and settle.