KEY POINTS

  • Sending large amounts of funds through the Bitcoin blockchain is cost effective
  • A similar transaction over PayPal will net $37 million in fees
  • Still, the transaction fees are not justified for small-time payments

Cryptocurrency tracker Whale Alert notified the crypto community of the transfer of 92,857 Bitcoins to an unknown wallet for the fee of just $4. At current prices, the Bitcoins are worth $1,092,603,640, making it one of the largest Bitcoin transactions broadcasted on the blockchain. 

Normally, Whale Alert would attach the possible identity of either the sender or the recipient of the cryptocurrency funds. This can be done because some persons and companies have publicly disclosed their blockchain addresses. 

For this particular $1 billion transaction, Whale Alert said the sender used a Xapo wallet or account but the receiver’s wallet was unknown. The blockchain revealed that the unknown wallet where the Bitcoins were transferred was a newly created one. 

For anyone who thinks this is a rare occurrence, a Twitter user said these transactions happen a couple of times a month. On July 1, a transaction worth $930 million was broadcasted on the blockchain. It only took the sender $0.48 to proceed with the transaction.

The transaction is important for highlighting the cost-effectiveness in sending a large volume of funds using Bitcoin and the Bitcoin network. According to DesignHill.com, a similar amount transferred through PayPal will net a fee of $37,148,524.06. 

Despite the cost-effectiveness for large transactions, small amounts could face high fees in order to get confirmed on the Bitcoin blockchain. Right after the Bitcoin halving, transaction fees have increased by over 2,000%. A transaction in May 2020 paid $6.64 in fees. With Bitcoin prices increasing, so do the transaction fees. On Aug. 5, the average transaction fee was $5.35. 

This makes it impossible for small-time transactions to get confirmed on the blockchain as the fees do not justify the cost. Several initiatives are being undertaken to solve the problem of transaction fees. One of them is the Lightning Network, a layer 2 payment protocol on top of the Bitcoin blockchain.

The idea is that small transactions will be collected and facilitated on the Lightning Network before they are transferred in bulk on the Bitcoin blockchain. While it takes around 10 minutes for Bitcoin transactions to be confirmed, it only takes 1 to 2 seconds in the Lightning Network, said to be capable of handling 1 million transactions per second.