Bitcoin’s Weekend Whipsaw and Whiplash

Bitcoin vs. Bitcoin Cash

Bitcoin-vs-BitcoinCash.png

In the Bitcoin and digital currency ecosystem there exists two types of people: The people who transact with digital currency daily and the people who largely talk about and watch the price of Bitcoin and other digital currencies.

At Athena Bitcoin Inc. we process hundreds of Bitcoin (BTC) and Litecoin (LTC) transactions per day.  Our customers buy digital currencies such as BTC and LTC and expect delivery in a reasonable amount of time. 

What’s reasonable?  10-20 minutes.  When we send transactions, one primary tool we use to gauge the BTC transfer fee rate (expressed in satoshis/byte) that we should be paying on any given day via the BTC network is https://bitcoinfees.earn.com/.

The problem with fee estimation is that it’s always looking at the immediate past and not the future. When transactions begin to be sent significantly faster than they can be confirmed into blocks, fee estimation is usually somewhere next to useless as these transactions initially pile up.

This past weekend we failed to deliver to our usual standards as the BTC network became congested. This was caused by a very large miner shift from Bitcoin to Bitcoin Cash (BCH).  It began Friday and accelerated into Saturday.  The miners whipsaw caused Bitcoin Cash to shoot up in price as mining the BCH network became more profitable than mining BTC.  Profitability swings in Bitcoin Cash’s favor have occurred several times before (since BCH forked on August 1st), however, this is the first time we’ve noticed a miner whipsaw due to price action alone.  Other external factors, such as the Segwit2x cancellation, also drew more attention to Bitcoin Cash.  Whatever the cause, the combined effect was one of the largest shifts in miner hashing power out of BTC and into BCH!

Saturday morning brought the whiplash!  Customers could not see their transactions on the BTC Blockchain.  Upset customers began calling and emailing us at a rate not seen before on our customer service portals.  We looked at our backend and wallet system and noticed our automatic transactions that pay customers had overnight and into the morning become “stuck” behind a wall of higher fee transactions and overall memory pool congestion.  Bitcoin blocks slowed to less than three per hour as Bitcoin’s hash rate dropped, leaving the network with less than half the normal capacity to clear transactions.  Although we manually increased our transaction fees, most of our bitcoin available for sale was now stuck in transit waiting for a block.  We quickly assembled and then emailed, tweeted, and posted on our website the following blogpost:

https://www.athenabitcoin.com/news/2017/11/11/why-bitcoin-cash-makes-bitcoin-harder-to-use

Mining fees on the BTC network ballooned as people tried to adjust to the vastly lower capacity.  Thousands of the highest fee transactions were paying over 1000 sat/B! That’s equivalent to over $13 for the most common transaction size (226 bytes).  Meanwhile, the Bitcoin Cash price spiked which further exacerbated the mining shift to BCH.  For only the second time in Bitcoin Cash’s history they had more mining power than Bitcoin!

These conditions existed for close to 36 hours until the difficulty reset on Bitcoin Cash pushed the profitability back to Bitcoin around 2 pm CST on Sunday 11/12/2017.  Bitcoin began clearing more of the stuck transactions and all of Athena customers affected by this delay were fully paid by early Monday morning.

We very much thank our customers for their patience and understanding, and we made our best efforts to keep everyone informed of the very fluid situation.  Obviously, the delay was out of their (and largely our) control and not something they were expecting when they made their purchases. It was a trying weekend for all of us who transact in BTC (not just watch and comment).