An increase in SegWit adoption rates and reduced bitcoin mempool congestion may finally be reversing the effects of Bitcoin’s surge in transfer fees at some cryptocurrency exchanges.

On March 1, 2018, Binance tweeted a 50 percent reduction on bitcoin withdrawal fees, bringing the figure to 0.005 BTC per withdraw. Hours later, Kraken announced a similar change, matching the new amount charged by Binance. Bitfenix, presumably not wanting to be left behind, followed suit and a day later, set its Bitcoin withdrawal fee even lower than its competitors, at 0.0004 BTC.

The reduction in transfer fees is not exclusive to Bitcoin either. On February 25, the CEO of Binance announced that the withdrawal fees for ERC20 tokens would be lowered by 25 percent and dynamically adjusted in the future. The move came after several weeks of clamoring by the digital currency community for increased SegWit adoption and exchange price reduction.

Despite the Bitcoin network stabilizing over the past month or so, some exchanges continued to charge outrageous transfer fees, rendering the movement of small amounts of cryptocurrency infeasible. The justification has largely been that exchanges pay a premium to have their transactions included in the next mined block for greater customer satisfaction. The more likely alternative though, may be that exchanges stand to profit from the amount left over after facilitating the transfer at a lower fee than what was collected from the user.

SegWit Adoption Gathers Pace In Popular Exchanges

On February 20, 2018, the popular US based cryptocurrency marketplace, Coinbase, tweeted that it would be rolling SegWit across its Bitcoin-related infrastructure within the next week. On the very same day, Bitfinex released a blog post on Medium also confirming the exchange’s migration to SegWit compatible wallets for Bitcoin deposits and withdrawals. As of the time of writing this article in early March, both companies have successfully made the transition.

Even though SegWit was activated through the User Activated Soft Fork, also known as BIP-148, in August 2017, its adoption among users hovered around a measly 12 to 15 percent of all transactions on the bitcoin network. Given that the feature allows a dynamically increased block size by splitting signature data from transaction data in a block, its wide adoption was always said to deliver significantly lower network fees. Shortly after Coinbase and Bitfinex began with SegWit adoptiont, its employment rate jumped to almost 30 percent.

It is still unclear whether the sudden spike in Bitcoin’s transaction fees throughout the end of 2017 was due to the rumored mempool manipulation or just a product of aging infrastructure and increased, legitimate volume. However, with SegWit support being rolled out on two major cryptocurrency exchanges and the Bitcoin Core wallet, there may be some respite from soaring fees in sight, at least for the near future.

Scaling Solutions Are Almost Here… Almost Here… Almost…

On the topic of scaling solutions, and even with the long awaited Lightning Network finally making significant progress, slow uptake has mired SegWit adoption since its launch. As for technical issues, things are not looking too promising either, with the popular bitcoin developer, Peter Todd, tweeting his skepticism on the matter a few days ago.

Interestingly, even though Binance, Kraken and Bitfinex have brought down withdrawal fees significantly, other exchanges such as Kucoin continue to impose a 0.001 BTC fee.

Right now, the only other avenue left for reducing bitcoin transfer fees at cryptocurrency exchanges, besides SegWit adoption, is transaction batching. A single entry with one input and several outputs can reduce the space a transaction needs on a block and further guarantee lower network costs.

After all, even with the reduced rates, exchanges are still charging more BTC than required to facilitate a transfer. Those profits have to come from somewhere…

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