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The Bitcoin network is currently experiencing a period of rapid growth, which has caused scaling issues for the technology and social fissures in the online creation community. Bitpay, the juggernaut global bitcoin payment service provider, threw its support behind Bitcoin on Tuesday in a post by CEO Stephen Pair. The Atlanta-based company then raised its minimum transaction size limit on Wednesday, citing Bitcoin’s rising transaction fees.
On Wednesday, Mr. Pair summarized Bitpay’s view of the present day for Bitcoin.
“Markets and economics will eventually overwhelm any ideological stance community members hold,” wrote the Bitpay CEO in a Medium post. “Miners may be compelled to increase the block size limit leading to a disorderly hard fork experiment. On the other hand, a user revolt might lead to a minority fork with equally disorderly results. Both sides of the debate seem to believe that Bitcoin will be destroyed if the other side gets their way. We are somewhat less fatalistic — we believe a variety of scaling solutions will materialize, and Bitcoin will enjoy continued success.”
In a blog post the following day, Bitpay announced that it is seeing all-time highs in bitcoin transactions processed via their service, before making a potentially telling announcement.
“[Effective tomorrow] we’re raising the Bitpay minimum invoice amount from $0.04 to $1,” the company wrote on Wednesday.
The rising costs of miner fees have hurt the pockets of some Bitcoin companies. Sources from more than one Bitcoin-related industry told Bitcoin.com they are experiencing increasing costs, with one reporting .50 cent fees on transactions as low as $1. Many experts say the network no longer lends itself to smaller payments. Bitpay seems to confirm this.
Bitpay New Invoice Minimum
“We’re responding to the increasing cost of miner fees by raising the minimum for Bitpay invoice creation to $1.00, effective [March 9],” Bitpay stated. “This change will protect consumers from creating un-economical transactions and remove our own risk for processing unprofitable transactions.”
Bitpay will allow merchants to experiment with “low-value invoices” under $1.00 on its testnet, which is based on Bitcoin’s testnet.
Mr. Pair seemingly primed the public for the announcement through his Medium account, in which he evoked Bitcoin’s “surging popularity” and “congestion” on the blockchain. He shared a chart about Bitpay’s rising miner fees.
“The data does not reflect miner fees paid by people paying a Bitpay invoice or fees paid by users paying from a Copay or Bitpay wallet,” Mr. Pair writes. “These are the fees Bitpay has paid to transfer its own bitcoin. The fees are normalized to USD to factor out the rising price of Bitcoin.”
According to the data, Bitpay’s monthly miner fee costs have increased 35-fold. “If we factor out our transaction growth of nearly 3x, it is still nearly a 12-fold increase,” tempers the CEO. “The fees aren’t just rising, they’re rising exponentially.”
Mr. Pair suggests that eventually an “equilibrium” will be struck and the true cost of a Bitcoin transaction discovered. He notes the value of the average transaction through Bitpay is rising.
“Many of the businesses we’ve signed up over the years have started using BitPay for B2B supply chain payments,” Mr. Pair writes. “And we have more and more enterprises signing up every day that need to make very large international plant and equipment related payments. For these customers, miner fees of a few dollars are irrelevant.”
He predicts that high value transactions will crowd out smaller bitcoin payments, which will then move ‘off-chain’, a term in the Bitcoin community denoting various solutions to the Bitcoin micro-transaction problem.
Despite Bitcoin’s growing pains, Bitpay remains confident in the technology over ‘altcoins’; anyone of the thousands of ‘copycat’ crypto-currencies that have cropped up in recent years.
Market Forces Will Dictate Future Miner Actions
“…A market is forming between on-chain, mining-secured payments and off-chain, more conventionally secured payments,” Mr. Pair surmises. “An off-chain payment could take the form of an alt-coin transaction, but the reduced security, increased volatility, and lack of liquidity of an alt-coin is going to make that a less attractive option.”
He concludes: “As off-chain transactions in one form or another are increasingly adopted, market share growth will start to diminish for miners. With their considerable investments at stake, they will be under pressure to increase transaction throughput to compete with off-chain payment solutions. We estimate that Bitcoin needs to achieve an approximate 100 fold increase in throughput just to be viable as a savings and settlement medium (aka digital gold). Market forces will push in that direction, but we need seamlessly inter-operable off-chain solutions to relieve some of the pressure while work is done to safely increase on-chain throughput.”
What do you think about Bitpay’s position and actions? Let us know in the comments below.
Images via Bitpay
Bitcoin.com is ramping up our tools section with a variety of useful Bitcoin-related applications. There’s a price converter, paper wallet generator, a faucet, and a verifier to validate messages using the Bitcoin blockchain. We’re pretty excited to introduce these new widgets and tools so our visitors have the best resources to navigate the Bitcoin landscape.