In this backdrop, bitcoin relentlessly marches, now nearing the tipping point, a unique and gradual event when the dominant paradigm shifts. Whether that comes to pass, however, depends on what the community now does. As a new year nears, giving us the opportunity for a new start, one hopes we can see the very unique opportunities we now have available for bitcoin is nearing the tipping point. Faced with this once in a lifetime event, it may well be the time to set aside any differences and unite, for 2017 may well be the year bitcoin goes mainstream.
The unsurprising winners have been miners, with their total fee revenue increasing from just over 10,000 USD at the beginning of the year, to an incredible $70,000 by year’s end.
The effect has been a substantial increase in confirmation times which have doubled during December 2016, a metric, median confirmation times, that hides more extreme delays during peak times, so smoothing them over quieter periods
As Nigeria, Venezuela, China, India and other countries continue mismanaging their currencies, combined with the hard work of the community primarily in 2013 and 2014, which has now provided a somewhat decent infrastructure, any short-term problems can be withstood, but with the wider infrastructure lacking any further development in the past two years and the bitcoin ecosystem welcoming few new companies, the whole space might start to feel the pinch two or three years down the line.
Some of the gain can be explained by bitcoin’s appreciating value, which has almost doubled in 2016 from around $440 to almost $800. That’s only part of the explanation, however, as bitcoin transaction fees, relative to block reward, which currently stands at around $10,000, has increased from 1% per block to 5%, or around $500.
That still translates to just 22 cents for an ordinary transaction of around 400 bytes in size, with peak time fees ranging from around 30 cents to 50 cents or more, but transaction costs have seen a constant gradual increase in 2016, primarily due to lack of transaction capacity.
Bitcoin fees have skyrocketed this year, increasing by 557% from 14 to 78 satoshis per byte, which translates to an eye-watering 1,013% increase in dollar terms in just one year, according to research by Jameson Lopp, engineer at BitGo.
Their rejection of two capacity increasing proposals, including Bitcoin XT and Bitcoin Classic, as well as their apparent rejection, so far, of the two options currently on the table, Segwit and Bitcoin Unlimited, neither of which finds much miner adoption, may indicate that the early speculations when the limit was imposed, namely that miners might wish to keep it to increase fees, temporarily and in the short term, may have come to pass.
The cost to the community for such shortsighted approach may be in terms of infrastructure. Silicon Valley’s investment of more than a billion in 2013 has now begun to pay off as bitcoin becomes a worldwide recognized brand, but some infrastructure providers, such as Circle, which made buying and selling bitcoin a convenient experience, as well as ChangeTip, which easily illustrated what bitcoin can do, has now closed, with wider bitcoin-specific investment seemingly drying up.
Images from Shutterstock, Jameson Lopp and blockchain.info.
Considering that the major, and perhaps only, winners of the capped transaction capacity approach largely implemented this year appear to be miners, the scalability debate may shift focus from developers, who merely provide code, which anyone can do, to miners, upon whom much of the system depends as they are meant to provide wider security, largely for the benefit of the wider ecosystem as well as their own individual reward.
Had the community remained united, it is unlikely miners would have been able to do so, but finding support from one side, they may have perhaps found cover, playing all sides while following a realpolitik strategy of temporary and short-term profits.
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