Sunday, February 5, 2023

Bitcoin Services BitPay, HitBTC Feeling the Pinch of High Fees

Bitcoin Services BitPay, HitBTC Feeling the Pinch of High Fees

Bitcoin merchant payment processor BitPay said yesterday that current $20-30 average bitcoin transaction fees are making BTC payments “impractical”. Accordingly, it will increase the transaction minimum to $100 USD for its merchant clients and debit card users. Other service providers, including HitBTC, are also changing their policies to address the issue.

Also read: Cboe Asks SEC for Permission to Launch Six More Bitcoin-Based Funds

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Any attempt to pay less than $100 with bitcoin will now return an error under BitPay’s system. BitPay covers transaction fees as an operating cost — just as it covers price volatility risk — in order to encourage more merchants to accept bitcoin.

With current bitcoin network conditions, transactions sent without large miner fees are at high risk of significant payment delays or payment failures. Bitcoin payments under $100 are quickly becoming impractical for users to send and for BitPay to process.

The change doesn’t affect wallet-to-wallet BTC payments, but it does limit the amount customers can pay to merchants, and loading BitPay debit cards.

The company is also working on adding support for Bitcoin Cash (BCH) and other unnamed blockchains in all its systems, with just a $1 transaction limit. It’s also working on solutions for SegWit addresses, which reduce fees by 40 percent on average, and is monitoring development on second-layer payment channels like Lightning Network.

HitBTC Introduces ‘Deposit Fees’

BitPay’s policy change could signal a trend as more third-party service providers feel the pinch of high fees — potentially damaging the nascent bitcoin economy by discouraging new users.

Yesterday, exchange HitBTC announced it would begin charging a fixed fee of 0.0003 BTC (currently ~$4.30 USD) simply to deposit bitcoin to account wallets. It said:

Bitcoin network has been experiencing difficult times in the last weeks. Due to heavily increased demand, a large number of transactions passes through BTC network. It leads to a significant amount of transactions waiting in the mempool, longer processing time and unprecedented fees.

Alternative Currencies Seize the Chance, but Is Anyone Actually Paying?

High transaction fees, caused by network congestion and the limit on Bitcoin’s transaction block size, are causing strain and extra expense for most third party service providers. These costs will likely be passed on to end users, either directly or indirectly.

Jelly BeansProponents of alternative cryptocurrencies, namely Bitcoin Cash, Litecoin and Dash, are seizing the opportunity to slam Bitcoin fees as discouraging to new adopters. The price of all three currencies has increased markedly in recent months, though that’s unlikely correlated with increased usage.

Defenders point out that bitcoin merchant adoption was never particularly high to begin with. As useful as bitcoin can be, it’s still not widespread as a payment network, and many holders keep their BTC (and other currencies) mostly for speculative trading and investment.

However daily payments (and even complete fiat currency replacement) was always supposed to be one of bitcoin’s ultimate goals. $20-30 fees per transaction are a serious impediment to this happening, and also discourages the small payments to families and friends that created many new bitcoin users in the first place.

Do you still use bitcoin to pay for anything? Let’s hear your thoughts.

Images via Pixabay, BitPay

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