Why does Bitcoin have Ridiculously High Fees and Slow Confirmations?

Jonald Fyookball
5 min readAug 30, 2017

If you’ve tried to use Bitcoin recently, you’ve probably noticed its getting expensive. The average fee spiked as high as $9 recently.

Yes, $9.

Heck, I paid $12 a few days ago and still had to wait hours.

It’s getting practically unusable. Yet, Bitcoin price is still going up. What’s going on?

Fees are High Because Transaction Capacity Has Become an Artificially Scarce Resource

There’s only 1MB of data allowed per Bitcoin block, or in other words, only 1 MB of data allowed every 10 minutes. It’s a piddling amount of data, considering that my home internet connection has a download speed that’s 420,000% greater.

It’s important to realize that transaction capacity is currently scarce because of a limit that was placed into the code and that has been kept there intentionally by the Bitcoin Core developers.

Without this artificial limit, there could still theoretically be a scarcity for transaction space, but it would be purely market driven (based on the willingness of miners to produce bigger blocks.)

As it is now, this artificial constraint of 1MB means that you have compete with everyone else and simply outbid the rest of the world.

To use an analogy: Imagine there’s a city bus that comes along every 10 minutes and only has 12 seats. Seats go to the highest bidders and if you aren’t willing to pay more than the other 800 people waiting for one of the 12 seats, too bad. Maybe you’ll get lucky if you wait long enough, but you’ll still pay a lot.

Sucks, right?

Wait, Wasn’t SegWit Supposed to Fix This?

SegWit proponents claimed repeatedly and for years that SegWit is a meaningful capacity increase, that it was equivalent to raising the blocksize, that it would produce relief.

Anyone with common sense and the most basic understanding of the technical details knew that they were exaggerating, misinformed, or simply lying.

Now that Segwit has been activated, we can all see the fees are only getting worse. SegWit clearly does very little to scale Bitcoin.

So, What is the Plan Then?

The Bitcoin Core developer capacity roadmap says:

there is a lot of activity ongoing related to “non-bandwidth” scaling mechanisms

What is a “non-bandwidth scaling mechanism?” Well it could be a lot of things, but essentially it means moving transactions off the main blockchain to other systems like sidechains, lightning networks, etc.

The purported reason for this is “decentralization”. Decrying threats to decentralization is the crypto equivalent of “think of the children”.

So what is their plan? Well, you can call it “moving things off the blockchain”, you can call it “non-bandwidth scaling mechanisms”, you can call it “layer 2 solutions”, you can call it “transforming Bitcoin into a settlement layer”…

It’s all the same thing.

The idea is that eventually, when these second layer systems are built, working, and adopted, then capacity will be spectacular, transactions will be fast, and fees will be low.

That’s the promise, anyway.

The Problem is, It’s No Longer Bitcoin

You can code up all kinds of fancy schemes to move things off the Bitcoin blockchain, and guess what you’ll have: things moved off the Bitcoin blockchain.

“They” will tell you I’m wrong. That these second layer systems really are Bitcoin.

For example, the Lightning Network paper says “These channels are not a separate trusted network on top of bitcoin. They are real bitcoin transactions.”

They may be real bitcoin transactions, but you can’t use them to scale the network without big centralized hubs to connect everyone (think Banking 2.0).

Or, take sidechains, which are alternate blockchains. Instead of a separate alt-coin, they are pegged to Bitcoin, so the argument is that with a 1:1 peg, its still Bitcoin.

…except that they aren’t secured by Bitcoin miners, but rather another, smaller set of miners with lower security, which makes them not Bitcoin.

Moreover, how and when do you get to exchange your pegged sidechain coins for Bitcoins? Do you have to go through a permissioned gateway? What if you want to transact with someone on another, different sidechain?

Clearly one does not have to be concerned with these questions if it “really was Bitcoin”.

What Do People Really Want — Peer to Peer Money? Or a Settlement Layer?

Bitcoin is defined in its seminal whitepaper as “A Peer-to-Peer Electronic Cash System”. It is not defined as “An Electronic Settlement Network”.

The Bitcoin Core roadmap has veered off into a totally new direction.

Many people don’t like this, don’t agree with this…and in response have created a fork of Bitcoin known as Bitcoin Cash, which I wholeheartedly support.

Why do I support Bitcoin Cash? Because it is the “Bitcoin I signed up for” — a peer to peer form of money.

The Bitcoin Core version of Bitcoin is becoming an institution-to-institution form of money.

I don’t want that, and I know loads of others do not want that.

“I Don’t Care. I Love Bitcoin Anyway!”

Even though Core has modified (some would say subverted) the original vision of Bitcoin, there are reasons why it still can succeed.

Many people do not care about “cash vs settlement”, nor about economics, politics, liberty, philosophy, ideals, or critical thinking in general. They only want something fast and cheap and reliable.

Others believe in the Bitcoin brand so strongly that they consider it the equivalent of immutable gold, regardless of what code it runs.

Right now Bitcoin price is rising, the media loves it…and it will probably keep rising in the short term.

Bitcoin Has Become Almost Entirely Speculative

So here we have this strange situation where Bitcoin prices keep going up, but its getting increasingly hard to actually use.

Everyone buying Bitcoin (who understands the issues) is therefore betting on these second layer technologies to come to fruition and to be adopted and favored over alternatives.

Long term, I think this could be a dangerous bet.

Ultimately, I think people do want peer to peer money and in time will understand what that means.

A person may not care about philosophy, and may have trouble seeing the future, but they will choose privacy, anonymity, and sovereignty over big brotherism and AML/KYC restrictions when shoved in their face.

If the ideals that allowed Bitcoin to become popular in the first place are ignored, minimized, and disrespected, it won’t end well.

Meanwhile, these second layer technologies aren’t even available for use, while competitors like Bitcoin Cash continue to gobble up use-cases and users.

Digital Gold?

Most dubious of all are the “store-of-value” or “digital gold” theories about Bitcoin.

It simply becomes a ponzi scheme/pyramid scheme/greater fool’s game if investors pour money into something for no other reason than they think other investors will pour money into it.

There has to be an actual use or real world value.

Granted, the second layer schemes do provide that, but I think it is inferior to what Bitcoin will be when done properly, as Satoshi recommended, with simple on-chain scaling and perhaps some optional market driven layering solutions in the future.

Bitcoin Cash

In conclusion, don’t expect Bitcoin fees to improve any time soon. They are high by design.

Instead, why not try Bitcoin Cash? It is Bitcoin as it was designed, and works beautifully with low fees and fast confirmations.