The bitcoin block size has reached a record high.
According to data from Blockchain.com, since the halving occurred last week, the average weekly size of the Bitcoin block has reached a record high.
As shown in the figure below, the data shows that the combination of two key factors has led to the emergence of these larger blocks: the recent halving of Bitcoin and the increase in SegWit adoption.
The block subsidy, that is, the number of newly generated bitcoins rewarded to miners for each block, was reduced by half last week, from 12.5 BTC to 6.25 BTC per block. This means that the reward for miners (denominated in BTC) is actually reduced by half. For convenience, the income from transaction fees is ignored here.
A key side effect of miner reward halving is that the network hash rate—a measure of the total computing power used by miners—decreases sharply. According to BitInfoCharts, between May 11 and May 17, the Bitcoin hash rate dropped from 137.5 exahashes to 85.8 exahashes per second, a decrease of about 38%.
The reduced hash rate means that, at least until the Bitcoin difficulty is adjusted, the block generation speed becomes slower. The data of BitInfoCharts shows that at present, a block can be generated every 14 minutes.
Since the block generation speed is longer than the normal setting of 10 minutes, miners pack more transactions in each block than ever. In other words, the supply of block space has dropped. This economic phenomenon can be observed through a rise in the median transaction fee.
Although there are fewer bitcoin blocks dug out regularly, the adoption rate of SegWit is much higher than the last time when a certain degree of block congestion occurred. According to charts.woobull.com, compared with the last time Bitcoin transaction fees exceeded $ 1—occurring about 1 year ago, SegWit adoption increased by about 11%.
SegWit is a bitcoin network upgrade activated in 2017. In addition to being able to implement a more efficient Layer 2 protocol like the Lightning Network, this improvement also effectively raises the upper limit of Bitcoin block size.
Because it can reduce the cost of all nodes on the Bitcoin network, SegWit-based transactions enjoy special discounted rates, which incentivizes users to move to wallets that support SegWit functionality. Although not statistically significant, historical data seems to indicate that the adoption rate of SegWit will increase after the level of bitcoin network congestion increases.
If bitcoin transaction fees continue to rise, it may prompt SegWit adoption to rise further. Assuming that handling fees are really starting to soar, perhaps Blockchain.com, which has accounted for half of all transactions on the Bitcoin network in the past, will also adopt SegWit. Having said that, now users can also choose to move to a second layer network such as Lightning Network or Liquid to avoid high on-chain costs.
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