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Having trouble sending a Bitcoin transaction? That’s because the blockchain is absolutely bloated at the moment—although for a different reason than some might expect.
According to mempool.space, a medium-priority Bitcoin transaction currently costs $34.08 to get processed promptly. The rest must wait in line with a tsunami of more than 333,400 unconfirmed transactions.
As with most Bitcoin fee spikes, Crypto Twitter reacted by bemoaning Bitcoin’s limited transaction throughput, pushing for the adoption of efficient layer 2s and sidechains. Others welcomed the surge as a windfall in revenue for Bitcoin miners, who are more than doubling their Bitcoin earned per block.
The cause, however, is neither Ordinals nor Runes—Bitcoin tokenization protocols known for driving fees sky-high in the past.
According to CryptoQuant, the culprit for Bitcoin’s congestion is OKX, the Seychelles-based crypto exchange that is currently the third largest in the world by trading volume.
“A lot of activity from OKX exchange today, most of it is related to internal transactions to consolidate outputs,” wrote CryptoQuant Head of Research Julio Moreno to Twitter. “This has caused a spike in fees.”
A lot of activity from OKX exchange today, most of it is related to internal transactions to consolidate outputs.
Exchanges do this from time to time for wallet management purposes.
This has caused a spike in fees, see below. pic.twitter.com/twDqgevPFM
— Julio Moreno (@jjcmoreno) June 7, 2024
Individual Bitcoin transfers are stored in users’ wallets as unspent transaction outputs (UTXOs). When that user wants to send their Bitcoin back out to another wallet, they must pay transaction fees on every individual UTXO sitting in their wallet, which can add up if making large transfers.
This problem is especially concerning for exchanges, which frequently have small transactions coming in, and large ones going out. As such, exchanges “consolidate” their UTXOs by spending them all at once while network fees are relatively low, merging all of the inputs into much larger outputs in the same wallet.
That said, one large exchange engaging in this behavior has the power to drive up fees across the whole network, making transactions burdensome for everyone else.
Some crypto devs criticized OKX for choosing to brute force its consolidation this way, losing thousands of dollars in fees in the process.
“It’s really not that hard to have an engineer spend a few hours writing an alert for transaction fee changes greater than X standard deviations,” said Casa co-founder Jameson Lopp.
Edited by Ryan Ozawa.
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Source: https://decrypt.co/234446/bitcoin-fees-skyrocket-okx-exchange-burning-utxo
