Bitcoin Magazine
Low Fees Are A Symptom Of Deeper Problems
During times of reduced transaction fees, many individuals rejoice. It’s an opportunity to tidy up your crypto holdings, consolidate any UTXOs that require attention, manage your Lightning channels, and perhaps even engrave some trivial 8-bit jpeg onto the blockchain. These moments are often viewed as positive—at least on the surface.
However, the reality is quite different. The past few months have witnessed remarkable price surges, with Bitcoin finally surpassing the anticipated $100,000 threshold that many expected to be a given in the last market cycle. This phenomenon is anything but ordinary.
The image on the left illustrates the average fee rates recorded daily since 2017, while the image on the right depicts the daily price averages for the same period. Historically, during periods of price increases and heightened volatility, fee rates have also shown considerable spikes, typically rising in tandem and peaking alongside the price surges. In those times, actual buyers and sellers executed on-chain transactions, with individuals managing the custody of their own assets upon purchase.
However, the recent climb to over $100,000 does not seem to have prompted a similar increase in fee rates compared to earlier movements within this cycle. If you examine both charts, it might lead many to ponder, “Could this cycle be nearing its conclusion?” While that remains a possibility, let’s entertain the notion for a moment that it is not.
What could this trend signify instead? It suggests a shift in the market participants that are influencing the current dynamics. The previous landscape was dominated by individuals who self-custodied their assets, maintaining control over counterparty risks by withdrawing profits from exchanges and instigating time-sensitive on-chain transactions. Now, it appears we are witnessing a transformation towards a cohort of users who are merely trading ETF shares, thereby diminishing the necessity for any on-chain settlements.
This shift is concerning. The essence of Bitcoin is anchored in the direct interactions of users with the protocol itself—those who hold private keys to authorize transactions, generating revenue for miners. Those who receive funds and validate transactions against the network’s agreed-upon rules using appropriate software.
As the hands of users are increasingly stripped of these critical functions and delegated to custodians, this jeopardizes the foundational integrity of Bitcoin’s characteristics.
This presents a significant existential risk that must be addressed. The overall stability of consensus on a given set of rules relies heavily on the presence of numerous independent actors with varied interests who nevertheless find common ground in the value derived from adhering to that framework. Should the number of independent actors dwindle while the number of individuals merely “using” Bitcoin via these intermediaries grows, it becomes increasingly feasible for that smaller group to coordinate adjustments to those rules. Consequently, their collective interests might diverge from those of the broader community of secondary users.
If trends continue in this vein, Bitcoin could potentially develop in ways that do not align with the aspirations of its current advocates. This issue is twofold, encompassing both a technical challenge—how to scale Bitcoin so that users can maintain independent control of their assets on-chain, even in worst-case scenarios—and a challenge related to incentives and risk management.
The system must not only scale effectively but also introduce mechanisms to alleviate the risks associated with self-custody, akin to those that traditional financial systems provide. Many individuals require this type of assurance.
This is not merely an argument for “following my approach because it’s the singular correct path.” The ramifications of this dynamic extend significantly, posing long-term implications for the fundamental properties of Bitcoin itself.
This article is a Take. The opinions expressed are solely those of the author and do not necessarily represent the views of BTC Inc or Bitcoin Magazine.
This post Low Fees Are A Symptom Of Deeper Problems was originally published on Bitcoin Magazine and is authored by Shinobi.
