The last few days have been very interesting. Bitcoin was way up a few days ago and now has dropped to $12.533.67 according to CoinDesk and at the time of writing this post.
There has been bad news... accusations of insider trading at coinbase, and a huge uplift in unconfirmed transactions according to blockchain.info. Today the unconfirmed transactions are over 260,000 on the btc network.
So what does this all mean, well for people holding bitcoin they are likely going to be paying a transaction high way more than they did a few months ago. And the average fee is over $50 for the highest priority so anyone with small amounts of btc is not likely to process a transaction. This kind of leaves the people with huge holdings of btc with a lot more power as paying a $50 transaction fee on a $100,000 transaction is insignificant.
I am looking at the current drop of bitcoin as a storm and waiting to see what will happen over the next few days and weeks as things will likely change.
However, the current state of high fees and unconfirmed transactions has made me think more deeply about how this effects the short and long term view of bitcoin. On the one hand, for miners (which get paid part of the fee) this is kinda great news that the fees went up. Essentially the more hash power you have the more you will be collecting of the higher fees. The last reports I have seen from a week or so ago showed that the btc reward for a new block was 12.5 btc....and the fees paid for the new block were 7 btc. And this was when the fees were lower.
So now I am anticipating higher payouts with my miners I am curious to see what my next payout will be with my mining power on HashFlare. Essentially I am anticipating that the payout will be increased for the next while as the transaction fees remain high. And I am glad that I have purchased cloud mining because it ending up being a good result considering the price of btc is now in the $12k usd range. The value of my btc coins went down but the anticipated payouts from mining have increased.
Getting back into why the fees are so high, my understanding is each block on the bitcoin block chain is 1mb in size and the amount of blocks created each day is limited. So as demand for transactions goes up, essentially the space on the block chain becomes more valuable, and people are likely to pay a higher fee instead of wait in line for their transaction to go through.
I don't think there is anything in the stock world that processed transactions in this way. So it is one of those things where there is not much certainty on how it will work out. And I am sure there are a lot of people looking at other crypto currencies that have smaller fees and also people that are going to be pushed back into "traditional" currencies and holdings.
There are some people like Mcafee that are predicting huge long term rises in the price of btc and he has a significant investment in a mining farm in the USA and also in bitindia (with a wallet on the way as well, and an exchange).
I don't see the big players in the industry slowing down what they are doing just because of a dip in the btc price, however I am sure it is having an impact.
For now I will stick with cloud mining.