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Bitcoin's Traffic Jam: Network Congestion Reaches 700,000 Unconfirmed Transactions

Almost no one is actively using Bitcoin, yet the network is nearing full capacity and experiencing record-high congestion. Is this a cause for alarm?

Hello, Whales! 🐋 Hope everyone is having a great weekend!

Over the past two weeks, the number of unconfirmed Bitcoin (BTC) transactions has surged, reaching a high of 700,000 on September 6th, 2023. This situation is causing distress in the Bitcoin community as it highlights a persistent issue in the network.

The surge in unconfirmed transactions is primarily due to the growing volume of transactions on the Bitcoin network this year. While many aren’t aware of this yet, earlier this year, we saw the introduction of ‘Ordinal inscriptions ‘, which are the main contributor to this surge in new transactions.

Over 31 million Ordinal inscription transactions have even exceeded the number of financial transactions completed recently, leading to a substantial backlog of unconfirmed BTC transactions, that has almost completely clogged the network.

Understanding the Mempool

To comprehend this situation, it's essential to understand the concept of the "mempool," which represents the collection of unconfirmed transactions waiting to be included in a block. A website I use to view this data is www.mempool.space

When you initiate a BTC transaction, it doesn't immediately just go into the blockchain; instead, it enters the mempool. Miners will then select transactions from this backlog for confirmation and inclusion in the next block.

Usually, miners tend to give preference to transactions with higher fees, prioritizing them for processing. However, the transactions involving ordinals, often being of small value and having relatively low fees, are placed at the back of the queue. This practice has led to a substantial backlog, impacting not only ordinal (NFT) traders but also regular Bitcoin users attempting to conduct transactions.

Rising Unconfirmed Transactions

Bitcoin's Mempool Congestion: Unconfirmed Transactions Approach 700,000 in September

The backlog of unconfirmed transactions has been steadily growing since April 22, 2023, and it hasn't been fully cleared since then. During the first two weeks of September 2023, the number of unconfirmed transactions consistently exceeded 500,000. To clear this mempool, miners would need to confirm 196 block rewards, equaling approximately 376 megabytes of block space.

Considering that each block takes about 10 minutes to mine, it would take roughly 32 hours and 40 minutes to process and clear these 196 blocks.

Bitcoin Back Log Reaches Record Highs

On September 6, 2023, the backlog reached its peak, with over 652,000 unconfirmed transactions recorded on that day.

This year's increased transaction volume has also led to all-time highs in daily confirmed transfers. For instance, on May 1, 2023, around 682,281 transactions were confirmed. Just nine days later, on May 10, 671,668 transfers were confirmed, marking it as the second-largest day on record.

On September 5, 2023, miners confirmed 625,257 transfers, ranking it as the fifth-largest daily confirmation rate.

Zero Adoption, Yet Usage Already Maxed Out.

It’s been over a decade and Bitcoin still hasn’t seen any reasonable utility. The only country on earth that decided to adopt it was El Salvador, and upon no interest, they had to force people to use it and teach it in schools.

They created their own centralized app called Chivo, and paid people (in fiat) to use it. People signed up, got their free fiat, and then uninstalled. Bitcoin usage is now down over 95% in El Salvador, as everyone is back to using fiat currencies, which they believe is much easier and realistic.

Outside of that, Bitcoin trading has also tanked as we’ve entered the bear market, which we predicted back in 2021. But despite all of this, Bitcoin transactions are nearing 100% capacity due to Ordinals, BRC-20 tokens, and Inscriptions, according to Dune research.

Bitcoin Block Fullness Diagram.

It's worrisome to me that Bitcoin has already hit its limits with low demand. How can it be used as a “global currency” when it struggles to function even on a small scale?

How to Address the Challenge?

This new trend of Ordinals has raised many concerns among Bitcoiners, and some maximalists are even refusing to discuss or acknowledge it. The risk with Ordinals is that they reveal how unscalable the Bitcoin network is to everyone. While people are currently using them for fun, imagine if an entity with malicious intentions were to employ a similar method to artificially congest the Bitcoin network and halt transactions. With enough funds, this could be easily accomplished, resulting in a network shutdown.

It is clear that there is no one-size-fits-all solution. However, the Bitcoin community has proposed several strategies and implemented some improvements over the years, including Segregated Witness (Segwit), layer two (L2) concepts like the Lightning Network, optimizing transaction size, and employing transaction batching.

Yet, despite the availability of these solutions, the backlog has shown no signs of improvement. It's important to note that making significant changes to the Bitcoin code requires consensus among network participants, which can also be a lengthy process. Could Bitcoin need a code change to address the impending issues that limit its scalability?

Share Your Thoughts

As always, our goal with this newsletter isn't to criticize Bitcoin or encourage people to sell; instead, it's to provide education.

This news often goes unnoticed, and you'll rarely find other crypto news sources discussing data like this. We aim to be the contrarian voice that informs you about the good, bad, and ugly aspects to help you make informed investment decisions.

We would also love to hear your thoughts on the increasing backlog of unconfirmed Bitcoin transactions. Do you believe the mempool will eventually clear? Let us know!

Stay informed, and stay tuned for more updates from WhaleWire!