For an article (and gaming) research, I tried an alternative way to buy a Steam game using bitcoin (or litecoin). Basically, Steam removed Bitcoin as an option to buy a game, so I looked for a way to still do it.
I was about to send my bitcoins resting in Coins.ph to get the voucher. But man, the bitcoin transaction fee is higher than the amount I will send! What gives?
This article was first published on December 18, 2017 and obviously a lot has changed when it comes to bitcoin transaction fees.
Bitcoin High Transaction Fees
Twitter is literally littered right now with people complaining about bitcoin transaction fees. Bitcoin – the token and method that is said to eliminate the middleman, that is supposed to decrease transaction fees – is now unbearable for small transactions. Is this an isolated case with specific wallets? Or is this a problem in the bitcoin community already?
Sending ₱300 worth of bitcoins to another address stopped me back because of the ₱1.5K worth of transaction fees last time.
On the other hand, for mid-size transactions and big transaction, people think the fees are still tolerable. (Paying ₱1.5K for a ₱100k transaction is tolerable right?)
These lead me to think that the ones affected are the small-time transactions. If we initially think of bitcoin as an alternative to banks with high transaction fees, then bitcoin has become like banks in terms of transaction fees, for small-time transactions.
Why are Transaction Fees high?
Bitcoin’s block limit
The number of transactions that bitcoin can facilitate is limited by its current block size. As bitcoin awareness increases so does the number of people who want to buy or transact with it. How many transactions can be done at any given time will depend on the blocksize. For transactions that do not make it, they will be done once there is a new block that can carry the transaction.
But what (or who) dictates what transactions will be carried by a block?
When there are so many transactions that compete for a block, the miners will prioritize those that will pay a higher fee. Miners get rewarded with bitcoins whenever they do something valuable in the network (like confirming transactions). Mining bitcoin is very very expensive. So it is expected that they will choose to facilitate transactions that will pay the highest fees.
I see, is that the reason why Coins.ph have high transaction fees right now?
We looked at transaction fees in the past and this week. You can also look at your previous transactions with the PH wallet, and you’ll see the difference between what we used to pay before in terms of fees.
Coins.ph reassured everyone that they are looking for ways to decrease transaction fees. Also, in an article they have written a few weeks ago, Coins.ph mentioned that, in the past, they offered zero transaction fees because they are shouldering it. But as bitcoin inches closer to ₱1 million, fees become higher and they become unable to offer this no-fee option:
Bitcoin transaction fees have been inching higher across the entire world over the past month, and we’ve increased our fees in line with this to ensure that your transactions are picked up by miners for processing. Dropping fees too low would potentially result in transactions being processed extremely slowly, or possibly not at all.
As to whether they profit from this transaction fees or not, that is not something we know. What we do know is that indeed fees are really expensive right now even with foreign cryptocurrency exchanges.
What alternative should we do?
There are some ways that you can do to alleviate it.
Hold your bitcoins
This is one of the most obvious things to do. Don’t use your bitcoins and hold it in the meantime. Depending on who you ask, bitcoins are better as a holder of value than a means of transaction (For us at Bitpinas, bitcoin must be used for both). If we wait for a little longer, updates made to the bitcoin network this year will hopefully make transactions cheaper in the future.
Wait until the network is less strained
Fees are not fixed. It can be down right now and it will go up later. Fees depend on how many users are vying for a position to have their transactions be carried on a block.
As to when is the network less strained? That will really depend. Bitcoin is transacted 24/7. To be sure, try checking Coins.ph 3 times a day and determine when are transaction fees cheaper. (Once during the day, once during the afternoon, and once at night).
Use a wallet that lets you specify your fees
Coins.ph allows you to choose three types of fees depending on how fast you want the transaction to be confirmed. That’s a luxury because many other wallet apps do not even let us specify the payment fee we want. Another app that does that is Mycelium.
What wallets let you specify fees?
The only one with a good amount of reviews is Electrum Wallet. It is a desktop wallet that lets you specify your own fees. By default, it detects the lowest possible fee for your transaction to be confirmed, but you can override that in the settings.
How to determine the best fee?
To find out the most optimal fee, there’s some math involve and to help us speed up the process, we will leave you with 2 sites that tells exactly how much transaction fee you must allocate depending on how fast you want it to get confirmed. The first one is this website that gives optimal fees depending on the transaction time. This other website gives you the optimum amount depending on whether you want your transaction to be confirmed faster and slower.
Overall: Should we really use a wallet that lets us specify fees?
This really depends on you and how much do you want to get deducted from you because of the fees. But one thing remains, bitcoin transactions are really right on a global scale. Other wallets may have lower or higher fees than the wallets like Coins and Bitbit that are officially on the ground in the Philippines.
But Coins.ph is very convenient. Go to 7-eleven and you have your bitcoins in no time. Both Coins and Bitbit have customer support that speak the local language.
As for myself, I’m holding. Also, I have different wallets other than Coins and Bitbit. This is to ensure that not a single wallet holds all my bitcoins.
Bottomline: Ask yourself what is optimal at the moment for you. Why are you sending bitcoins? Maybe it’s better to transfer money in pesos for now. If you are sending bitcoins to another exchange to buy altcoins, check the transaction fees of the different wallets and see which one gives the most optimal transaction fee. Lastly, keep in mind the tips we mentioned above (like determining the time of day when it is best to send coins).