Bitcoin transaction fees are high due to the limited capacity of the Bitcoin blockchain. Bitcoin is a system designed to process transactions in a decentralized manner, meaning that it does not require centralized servers or processing power to keep the system running. This means that instead of relying on a few powerful entities to process transactions, the burden falls to all of the “miners” who are part of the network. Each miner has to solve a cryptographic puzzle in order to validate the transaction and add it to the blockchain, and this process requires computing power and electricity. To incentivize miners to process transactions, the Bitcoin network rewards them with newly issued Bitcoin when they add blocks to the chain. The higher the fee attached to a transaction, the more incentive miners have to process it.
When the number of Bitcoin transactions increase, the blockchain’s current capacity can become a bottleneck. This is because the blockchain has a limited amount of space available for new blocks, and because each block takes up a certain amount of space, there is a limit to how much data can be processed per second. As the capacity of the blockchain gets close to its limit, transaction fees start to rise, as miners will prioritize processing transactions with higher fees in order to maximize their income.
The high fees associated with Bitcoin transactions can be a major drawback, as they make smaller transactions impractical. However, this problem is being addressed by the development of new technologies such as the Lightning Network and SegWit. These technologies allow for faster and cheaper transactions than regular Bitcoin transactions, and as more users adopt these technologies the overall transaction fees for the network should decrease.
In addition, there are other solutions that could help reduce Bitcoin transaction fees. For example, the introduction of transaction batching, which allows multiple transactions to be processed together, can help reduce the amount of data that needs to be processed every time a block is added to the blockchain. This would help reduce the pressure on the network and lower transaction fees over time.
Finally, other measures can be taken to reduce the load on the Bitcoin network. For example, increasing the size of blocks would allow more transactions to be processed in each block, reducing the number of blocks that need to be added to the blockchain. This, in turn, would reduce the pressure on miners and allow them to reduce their fees in order to remain competitive.
To conclude, higher Bitcoin transaction fees are mostly caused by the limited capacity of the Bitcoin blockchain. While the issue is being addressed through the development of new technologies, further measures such as transaction batching and increasing the size of blocks may also help reduce transaction fees in the long run.