Some thoughts on transaction fees and mempool backlogs

The events of the last week have made me have another look at exactly who is affected by high transaction fees and mempool backlogs (I know the mempool is going down at the moment, but we can't rule out another spike if the BCH price recovers).

Those who have their own hardware wallets

This group is the most affected. In order to sell or spend their coins they have to use the network and pay the fees. And if they collected their coins back in the day where there were lots of tips and small wins from satoshi dice, they'll have a lot of dust creating inputs that they literally can't spend.

Those who hold their coins in wallets like the one Coinbase provides can either try to move money offchain by sending to another Coinbase user, or convert to LTC or ETH (which Coinbase enabled last year) and send those.

People who have their coins on exchanges have the easiest time of it. They can either sell for fiat and move that, or sell for an alt and move that.

Remittance providers

In 2013 there was much excitement in the Remittance world - could bitcoin be a way of moving money cheaply without paying Western Union's £25 fees?

The high transaction fees on the bitcoin network now make these businesses more expensive than Western Union.

Some Remittance companies are adapting. For example Bitspark, which is Hong Kong based and was founded in 2014, announced in October that they were switching to using Bitshares to move money instead.

Bitspark said:

“For most of this year the prevailing wisdom for high fees has been “Just pay more fees” which is not reasonable when there is no predictability or when your margins per payments on a $200 transaction can be wiped out on a $3 fee.”

"Using dynamic fees also does not work as a value proposition- when a customer does a remittance, trustworthiness is not gained by telling them “one day your fee might be $1 another day it could be $3 and I’m not sure when”

They're not the only remittance provider who has switched away from Bitcoin.

Moneypolo is using Sybcoin to send money to Russia. Singtel is using Dash to move money from Singapore to Indonesia, India, Bangladesh, the Philippines and China.

Merchant Payment Processors

BitPay gave a revealing interview to Coindesk back in October about the problems their business was facing:

Singh told CoinDesk: "We've seen a smaller than normal increase in the number of transactions from last year. We’ve also seen a large increase in [business-to-business] transactions, which are around $200,000 per transaction."

That's why BitPay's sales team is laser focused on securing more business-to-business commerce, according to Singh, and less fixated on the smaller retail and e-commerce merchants that in 2015 brought BitPay into being.

Talking to Singh, though, it seems the company would love to be able to help both, but, with transaction fees currently rising, it's just not practical to make transactions under $20, he said.

The only solution to this is to enable altcoins (or watch as your mechants switch to a processor that allows alts).

Conclusion

I personally think scaling has started to happen by working around bitcoin and using altcoins instead. Because there are so many altcoins to choose from, there won't be a single "bitcoin killer". Instead users and businesses will choose the alt that suits them best.

Already there are more transactions being done on the combined altcoin network than there is on bitcoin. The only way for an investor to profit from this is to keep an eye on this space and make sure you own the top ten alts that are being used to workaround bitcoin's problems.