Miner fees are particularly expensive at 9 PM? Bitcoin developer: The reason comes from BitMEX

Around 9 p.m. Taiwan time each day, the transaction fees on the Bitcoin network peak, taking about an hour to soar and then return to normal. A Bitcoin developer has pointed fingers at the cryptocurrency derivatives exchange BitMEX, stating that BitMEX's broadcasting of transactions significantly impacts Bitcoin network and user fees.

BitMEX Withdrawal Transactions Cause Network Congestion

An anonymous Bitcoin developer known as 0xb10c published a study on May 4th, examining the impact of BitMEX's Bitcoin trading method on the overall network. BitMEX is a cryptocurrency derivatives exchange that primarily offers futures contract trading, settling all contracts in Bitcoin. In other words, the exchange only supports Bitcoin as the cryptocurrency. Additionally, unlike other exchanges that allow withdrawals at any time, all withdrawal requests on BitMEX are processed and broadcasted at 9:08 PM Taiwan time every day. The exchange claims that this is done to secure assets, as BitMEX currently manually reviews and processes all withdrawal requests, making it nearly impossible to perform multiple operations in a day.

However, Bitcoin developer 0xb10c discovered that due to BitMEX broadcasting thousands of transactions at the same time every day, Bitcoin transaction fees on the chain significantly increase at that fixed time. Most Bitcoin wallets have built-in fee estimators that help users estimate fees based on the current network conditions to ensure transactions are promptly confirmed by miners. (Typically, if there are many unprocessed transactions on the network and the fees paid are too low, transactions may take a long time to complete.)

The congestion caused by BitMEX's high volume of transactions clogs the blockchain, leading to an increase in fee estimations by the fee estimator, resulting in many users being forced to pay high miner fees either unknowingly or under pressure. 0xb10c stated:

"BitMEX broadcasts several megabytes of optimized transactions, mainly withdrawals by platform users, around 13:08 GMT (9:08 PM Taiwan time) every day. This practice causes a surge in the estimated network fees by the fee estimator and ultimately forces other blockchain users to pay high fees."

Adopting Scalability Solutions Can Help Improve

From this perspective, it is evident that cryptocurrency exchanges closely related to on-chain transactions and whether they support blockchain scalability solutions have a significant impact on the blockchain.For example, the cryptocurrency exchange Binance holds a significant share of the trading volume in the spot market, but it does not support Segregated Witness (SegWit), a scalability solution that can reduce on-chain transaction processing pressure. Binance spokesperson Jessica Jung previously stated that the exchange has not yet upgraded to SegWit but is planning to do so.

In fact, BitMEX supports SegWit wallets, but the massive transaction volume still severely affects the blockchain. 0xb10c expressed:

"By using scalability solutions, some of which have become industry standards over the years, the impact on the blockchain can be reduced. BitMEX is moving in the right direction by adopting SegWit. However, they should not stop there."

0xb10c suggested that in addition to SegWit, BitMEX could also utilize "batching" (a technique that combines multiple transactions into one to save transaction space) to alleviate the burden of a large influx of transactions on the blockchain.

If the cryptocurrency derivatives exchange BitMEX adopts more efficient technologies when broadcasting transactions, it could save approximately 1.7 BTC in on-chain transactions for Bitcoin users per day (worth over $15,000 at the time of writing), accounting for about 7% of the total daily on-chain transaction fees.

Low Fees May Affect Blockchain Security

Interestingly, while 0xb10c provided suggestions to reduce on-chain pressure, he later pointed out on Twitter that although users prefer low fees, the high fees caused by BitMEX can enhance network security. Developers and other Bitcoin enthusiasts have been advocating for large exchanges and wallet providers to adopt scalability technologies that reduce fees and improve network transaction efficiency, including Segregated Witness or SegWit.

While Bitcoin miners' primary income currently comes from block rewards, when block rewards decrease every four years, transaction fee income will become increasingly important for miners. If fees continue to decrease and on-chain transactions do not correspondingly increase, it may impact the security of the Bitcoin system. Nic Carter, co-founder of cryptocurrency data provider CoinMetrics, responded to 0xb10c's study:

"It's a bit strange to realize that exchanges adopting better practices could find fees approaching 0, their waste actually helps to create fee pressure."

It’s a bit strange to realize that fees would be close to 0 if exchanges used better practices. Their profligacy helps maintain the fee pressure.

— nic carter (@nic__carter) May 4, 2020

Related Reading

• BitMEX Platform Trading Volume Declines, Losing Its Last Liquidity Advantage
• Bitcoin Scalability Solution "SegWit" Adoption Reaches Historic High

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