Yesterday, the stunning resolution of a prisoner’s dilemma-type impasse among bitcoin (BTC) miners suddenly slashed a standard BTC transaction minimum by 90%.
It’s a staggering admission by miners and users that demand for Bitcoin blockspace has hit a new low.
For years, Bitcoin Core and other node software defaulted to a minimum one satoshi per virtual byte (sat/vByte) transaction fee rate for broadcasting transactions.
Although the minimum was technically user-configurable — including zero fee transactions through out-of-band payment portals like SlipStream — the one-sat threshold persisted for years as a “cheap enough” convention.
Mining pool operators, happy to enforce the custom of charging customers at least a few cents per standard 140 vByte transaction, also disregarded most bids below one sat/vByte.
Motivated by profit to collude and maintain this artificial price floor of one sat/vByte, the market remained there in a metastable stasis.
However, recent months of dismal demand for blockspace started to create a lengthening queue of sub-sat bids.
Users sophisticated enough to modify their node software were able to broadcast sub-one sat bids for their ultra-low priority transactions and simply wait for miners to capitulate and accept their pathetic bids as better than nothing.
When blocks are partially empty, the temptation to accept at least something rather than nothing to fill up the space becomes too much to resist.
The prisoner’s dilemma of minimum BTC fees
Most miners respected Bitcoin Core’s default mempool rate of one sat/vByte for many months of dwindling demand for blockspace this year, yet they knew that that threshold was manually configurable.
As time passed and sub-sat bids piled up, the allure of profits for accepting a bunch of those transactions grew stronger.
A textbook prisoner’s dilemma had emerged.
In the classic dilemma, prisoners cooperate for mutual benefit in a tentative, metastable stasis of game theory mechanics.
However, secretly betraying peers results in short-term individual gain despite a net-negative average for the group over time. If anyone defects in the prisoner’s dilemma, the most likely equilibrium is worse on average for the group.
This is what happened yesterday in Bitcoin.
Bitcoin miners were benefitting as a group by maintaining the one-sat fee convention — even though a queue of sub-one sat bids was piling up in the background, tempting a miner to defect and accept a quick cash grab.
Yesterday, the dilemma resolved itself in a dramatic cascade that sent prices down 90%.
Punctuating from metastable to a lower equilibrium
SpiderPool, a mining pool, was among the first to defect for short-term individual gain. The pool mined block 905,729 with a stunning 2,145 of its 2,833 transactions bidding in the 0-one sat/vByte range.
“This is so funny to watch,” laughed another mining pool operator. “A miner has broken ranks and elected to grab a few bucks extra from the sub-one sat/vByte transactions out there.”
Indeed, it’s always remarkable to watch a metastable system suddenly punctuate to a lower equilibrium — especially when the system is human and the cause is a well-known game theory.
Read more: Bitcoin price at all-time high while other metrics at lows
0.1 sat/vB is the new 1 sat/vB
Almost immediately, the entire Bitcoin node community began to adapt to the new normal.
Mempool.space, one of the most popular block and mempool explorers, broadcasted the 90% reduction in the conventional fee minimum. “0.1 sat/vB is the new 1 sat/vB,” it posted on its social channel.
Some pools have adopted the new custom and will automatically accept bids as low as 0.1 sat. The Bitcoin network is starting to adjust to the new reality. Waking up this morning, some node operators are unaware that they can save 90% on fees by configuring their software.
The change is so recent that Mempool.space hasn’t even updated its website, which still reflects the old convention of one to two sats/vByte for estimating minimum priority transaction speed.
To be sure, BTC transaction fees are always at the user’s discretion. Although fees are currently at historic lows, during periods of high demand, average fees can regularly spike to much higher rates before returning to their non-peak demand equilibrium.
Going forward, the new minimum fee rate to propagate a standard BTC transaction will seemingly settle on a new convention of just 1/10th of a single satoshi, or one billionth of one BTC, per virtual byte (vByte).
Including all of the regular data that accompanies a standard 140 vByte Native Segwit transaction for a regular transfer of BTC between wallets, for example, could now cost as little as one to two cents — far less than the $0.17 minimum earlier this week.
