After a recent price drop in cryptocurrencies, the number of Bitcoin transactions has suddenly reduced. However, experts suggest that it could eventually be good for the blockchain.
Daily traction volume declines
The Bitcoin blockchain recently experienced a fall in the daily transaction volumes. In the month of March 2020, the volumes have remained as low as March 2019, owing to the massive fall in crypto prices. On the surface, it may look like a smaller number of people are making transactions in Bitcoin. However, this smaller number could be influenced by cryptocurrency exchange Coinbase.
Coin Metrics founder Nic Carter suggests that the reason behind this volume drop is good for the Bitcoin blockchain. He recently sent out a series of tweets, noting that there is a “definite uptick in batching last week or so.” He said that Bitcoin transactions are getting larger on average, but the total number of transactions has dropped. This leads him to believe that the process of batching is creating smaller volumes.
What role does Coinbase play?
Coinbase is a popular cryptocurrency exchange providing services to both retail and institutional crypto users. The exchange recently announced its new batching initiative that would unify several Bitcoin transactions into one large transaction. This transaction would be much bigger and more complex. Instead of one small transaction taking up space, there is a number of transactions packaged into one that ultimately reduces the load on Bitcoin blockchain by 50%.
Note that the price of Bitcoin has halved over the past week. Multicoin Capital research suggests that the market crash became harsher because of network congestion. Its managing partner Kyle Samani said that the Bitcoin blockchain witnessed a sudden increase in the number of transactions when the prices dropped. The network was not able to process them because of which the fees went up and delays increased.
This eventually made it harder for Bitcoin to move between exchanges which eventually led to a further drop in Bitcoin prices. One such example was BitMEX were an unprecedented liquidation led to the tumbling of Bitcoin prices.
With Coinbase creating batch transactions, the load on the Bitcoin network would be lower. If the prices were to drop yet again, the market would be more resilient to siloing and violent erosion of value.