In recent weeks, we've seen a significant change in the Bitcoin network that has had a significant impact on transaction fees. This development is particularly relevant for users of Bitcoin savings plans, such as those from Coinfinity. The reason for this are two major events: the recent halving and the simultaneous introduction of the new token standard “Runes”.
The Bitcoin halving, which recently took place at block 840,000, is a predictable event that occurs approximately every four years. In this case, the reward that miners receive (in addition to transaction fees) for adding a new block to the blockchain is halved. However, the halving not only reduced the block subsidy for miners this year, but also fell with the introduction of”Runes“together. Runes is a new token standard that, similar to NFTs, is based on the Bitcoin blockchain, but (unlike Inscriptions, for example) uses a UTXO-based model, which enables a variety of tokens on the Bitcoin blockchain. You can find more information about halving here: The Bitcoin Halving 2024: A turning point for everyone involved
Right after halving and activating Runes, there was a significant increase in transaction fees. The “Runes” have further increased interest in “special” and “rare” Satoshis, the smallest units of Bitcoin, and led to a massive increase in fees.
Runes, which are embedded in the blockchain through a special “etching” transaction, use the OP_RETURN function to store up to 80 bytes of data. They represent an evolution of BRC-20 tokens and, thanks to their full integration into the ordinal software, offer improved usability without additional software.
However, the combination of increased network activity due to curiosity and commitment around Runes and the general enthusiasm of some Bitcoiners to get a transaction into the halving block was also largely expected. A major factor was speculative trading with these new tokens, which put additional pressure on the already somewhat higher fees.
Numerous users who wanted to enroll certain tokens in the halving block paid horrendous extra fees in order to be preferred 840,000 when choosing for the halving block. This culminated in the incredible sum of 37.626 BTC in transaction fees in Said block. We're talking about 2.5 million dollars here, where otherwise, with average fees, around 0.2 BTC (approx. 3700$) can be paid out to miners.
However, following this initial increase, charges have largely recovered within a few hours, but currently remain at a slightly higher level than before these events. This suggests that Runes, Ordinals, and other NFT solutions are likely just short-hyped technologies in the long term, but lose momentum after a short period of time.
The halving underscores the deflationary nature of Bitcoin, where the amount of available coins that can still be mined is steadily declining. Assuming increased demand for Bitcoin transactions due to progressive adoption, this will lead to an increase in transaction fees in the long term, as block subsidies continue to decline and miners must be compensated for their work. Coinfinity is aware of these challenges and is actively working on solutions to keep the impact on customers as low as possible.
An important step in this direction is the upcoming implementation of Bitcoin purchases via the Lightning Network. The Lightning Network makes it possible to carry out transactions faster and with significantly lower fees by taking transactions from the main blockchain and moving them to a secondary layer. This technology will enable Coinfinity to increase efficiency and minimize costs for customers, in particular for regular savings plan payments.
A possible scenario would then be the following: A user has a Lightning-based savings plan running that is fast and cost-effective. If an individually defined limit has been reached on the Lightning Wallet, an on-chain transaction can be carried out for the larger amount, directly to your own hardware wallet. This saves fees and makes sense UTXO set.
The introduction of Runes and Halving exemplify the dynamic and constantly evolving aspects of the Bitcoin blockchain. They show how technological advances and economic models come together to shape the network. For investors at Coinfinity, this means that they can rely on a partner who will continue to proactively develop solutions to minimize the negative effects of network changes.
In doing so, we remain true to our goal of offering the best possible experience in dealing with Bitcoin and actively supporting you in building and developing your Bitcoin portfolio.
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