Bitcoin transaction costs…

My twin brother is a banking analyst in the City working for a well known US asset management company.

As you can imagine from the nature of this blog… we have some lively debates….

I wanted to answer a criticism he had of bitcoin that has been in the news lately.. that of transaction costs.

Ahh “but what about expensive transaction costs?” he asked. I said sure … “you pay more to speed them up”.

And my answer … coming from an era where SWIFT transaction costs for same day transfer of Β£20 is my benchmank … was wrong.

He had a good point! They can be expensive.

I only noticed because he asked the question.. So I checked, and sure enough he was right. A top up of fiat (Β£50) into my bitpay card from bitcoin cost me Β£9.00. That’s expensive!

The reason for this is a little bit more esoteric.

The miners of bitcoin support the network. This includes processing transactions to maintain the currency (as in freshness) of the blockchain. 

What this means is that the miners want all their resources to focus on mining when prices are rising dramatically (which they have been recently) and therefore the opportunity cost (apologies for using an accounting term but sometimes I can’t help it) of diverting these resources to process transactions at such times is expensive.

So. My answer to my brother is:

1) Do your transactions in less busy times (in fairness my bitpay app has warned me in the past that a transfer to fiat is not economically viable right now so the tech is there)

2) Next time I will transfer Β£500 to my card, not Β£50, and Β£9 as a percentage will be less painful.

I do hope that my brother becomes a contributor to this blog at some stage because it will become a little less one sided at the very least.

Love you “milodithernan” (that’s his acroynmn for “loin heart mind” – did I say he was very intelligent?)