Commerzbank runs through shortcomings of bitcoin as means of payment

The predominant objective behind cryptocurrency was to generate fidelity and anonymous method of mobilizing funds efficiently, ever since then it’s been presaged as ‘digital gold’. The bitcoin blockchain is extended by a block at the rate of approx. one in every ten minutes. To consider a transaction to have been completed in a sufficiently safe manner one has to wait for two to four blocks. That seems very long compared with cash. If you pay for your coffee with euro coins it takes less than 10 seconds. If one wants to conclude bitcoin transactions that are both safe and fast one depends on trustworthy intermediaries, in which case the principal ad- vantage of bitcoin is lost. 

This principal design fault of the bitcoin has been known for a long time, but it became more relevant recently. During the course of 2017 a phenomenon arose that had been predictable in principal for a long time but that then arose surprisingly early and in a surprisingly pronounced manner: sometimes considerable transaction fees were claimed. Why did that happen? There is a market for bitcoin transaction. Bitcoin miners are free to decide which transactions they include in a new block and which ones they don’t. As the size of the blocks is limited it can happen that not all transactions are immediately included in a block – once the restriction of the block size becomes binding. Someone who is willing to pay a high transaction fee stands the chance that his transactions will be included in the block more quickly. 

In January 2017, the block size first reached the size of 1MB. Even though a mechanism has been installed in the shape of SegWit that allows more transactions to be “squeezed” into a block, the underlying problem remains in place: the transaction volume of bitcoins remains limited and – as became obvious in early 2017 – is sometimes too small already now, despite the fact that hardly anyone uses bitcoin for transaction purposes. 

Since then miners have had the incentive to only selectively choose transactions that offer high transaction fees to be included into a block. In the hectic boom days in late 2017 / early 2018 the fees for XBT transactions temporarily shot up to above $35. A state like that has significant consequences for whether or not bitcoin is suited as a means of payment. The problem is: a transaction fee of 20 or 30 dollar may be acceptable for larger transactions. XBT transactions of smaller amounts realistically become impossible under these circumstances. Courtesy: Commerzbank

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