Objective
Since its inception in 2009, Bitcoin has experienced tremendous growth in terms of public acceptance as the oldest cryptocurrency. However, transitioning from an experimental digital currency to a mainstream payment network introduced new challenges related to scalability and capacity. This study investigates how bitcoin transaction fees respond to financial and technical factors within the network over different periods of its lifespan. The investigation provides novel insights into the dynamics of a decentralized currency and the maturity of a payment network.
Methods
Bitcoin blockchain data from 2009 to 2023 was categorized into three distinct periods for analysis: the Initial Period (2009-2014), Speculation Period (2014-2018), and Scalability Challenge Period (2018-2023). Autoregressive Distributed Lag (ARDL) modeling was used to analyze short-term and long-term relationships. The dependent variable was the transaction fee, and the explanatory variables included the bitcoin price, average transaction value, average block size, network difficulty, and transaction volume.
Results
The results showed that during the Initial Period, in the short term, the price and the previous day’s fee had a significant effect on the transaction fee, and in the long term, the price also affected the transaction fee. During the Speculation Period, the transaction volume, block size, and the previous day’s fee in the short term, as well as network difficulty in the long term, had a significant effect on the transaction fee. During the Scalability Challenge Period, in the short term, the previous day’s transaction fee, Bitcoin price, the average value of transactions in Bitcoin, block size, network difficulty, and transaction volume had significant effects on the transaction fee, while in the long term, network difficulty and block size remained significant. Moreover, during the Scalability Challenge Period, the previous day’s fee had a strong effect on the current day’s fee, creating a kind of stickiness that persisted until the end of the period. Overall, fees were stabilized over time as users and miners learned the factors influencing them, optimizing their behavior around block limits and mining reward incentives. During the Initial Period, transaction fees were highly volatile due to Bitcoin’s nascency and limited usage. As cryptocurrencies increasingly became utilized as a payment mechanism in the Speculation Period, the technical parameters affecting block sizes and processing capacity caused fees to be more reflective of demand on the network. The emergence of scalability constraints facing the blockchain in the Scalability Challenge Period has led to linking the dynamics of fees to more metrics that act as proxies for the level of activity and network usage.
Conclusion
As bitcoin has become a payment network in the new concept, the fees have been aligned with the demand and motivations of network participants during the scaling challenge period, instead of randomly fluctuating during the Initial Period. The separation of bitcoin network data into three time periods provides a new perspective on how decentralized networks work and the factors affecting the fee market in different periods of network maturity.