There are hundreds of virtual currencies available to the Cryptocurrency community at the moment, but Bitcoin is by far the most popular. It’s ranked number one among all Cryptocurrencies in terms of value. Its market cap is currently just above $16 billion translating to around 68.3% of all Cryptocurrencies market caps. These numbers show how dominant Bitcoin is. Although its dominance has declined over the last few months, a 68.3% dominance is still respectable. The growth of Bitcoin has been impressive and you can argue that it’s on its way to becoming a universally accepted mode of payment — just like gold.
Currently the number of Bitcoins in circulation is slightly above 16.2 million and as miners continue to mine more coins, the transaction costs involved have sky rocketed. Transaction costs have become so high that nearly all Bitcoin exchanges have stopped paying network transaction fees for their customers. Coinbase was among the few exchanges that were still paying on-chain fees for its users but announced that the high cost of these fees have forced them to stop offering these services. Some Bitcoin enthusiasts have gone a step further to blame high transaction fees for the decline in its market cap.
Staying with miners and transaction fees, BitPay, a global Bitcoin payment service provider, has announced through one of its blogs that a fee will be added to each invoice. This announcement was made last week and it took effect yesterday(Mar 23). The main reason behind adding this fee to each invoice is of course high network transaction fees. The fees have been so high that they have become a major component of the blockchain. Imagine transaction fees of up to 1 BTC and even in some cases 2 BTC, this is a significant amount of money. Nobody can really blame these exchanges for announcing that they will no longer be able to pay these fees for their users.
When a BitPay user makes a Bitcoin transaction, it means that he is sending funds to a Bitcoin wallet address controlled by BitPay. The payment recipient receives and transfers away Unspent Transaction Output or UTXO. UTXO is the unit of Bitcoin which can be used in another Bitcoin transaction. BitPay has seen an increase in its network costs because of the miner fees paid to combine and sweep UTXO from BitPay receiving addresses. Note that UTXO consolidation cost is not the same as the miner fee which included with your initial payment to a Bitcoin address.
So what really has changed? UTXO consolidation costs have increased so BitPay in a bid to prevent losses have decided to automatically add this network cost to the total cost of paying a BitPay Invoice. Merchants though have a reason to smile because merchants’ fees and pricing will not be affected by this change. However for purchasers paying a BitPay invoice, they are not as lucky because network costs based on current network fee estimates will be shown as part of the total amount to be paid. BitPay recommends making Bitcoin purchases in larger increments because this will help to offset the cost across a larger payment value.