TL;DR
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Late last week, out of nowhere, BTC transaction fees started to skyrocket.
Which made us question…was this because of Gamestop? Had Runes suddenly had a massive breakout? Or something else?
Turns out, it was something else.
The third largest crypto exchange in the world – OKX – just consolidated a whooole bunch of unspent transaction outputs (UTXOs).
Here’s what that means:
Imagine Seb wanted to send Chevy 5.1 BTC.
Chances are, Seb doesn’t have exactly 5.1 BTC in his wallet (especially if he has done a few BTC transactions in the past).
So instead of transferring exactly 5.1 BTC, Seb might transfer 5.2 BTC because right now, in Seb’s wallet, there’s 5BTC and 0.2 BTC (see the header pic or watch this video for a better understanding).
The ‘change’ Seb receives (0.1 BTC minus any fees) would become the UTXO.
Now, this becomes a huge problem for a crypto exchange that sees thousands of trades per day, with most resulting in some amount of UTXO.
And every so often an exchange might consolidate their main wallets to reduce UTXO’s – all in the plan to reduce the cost of future transactions, and reduce congestion on the Bitcoin network for future trades.
Which is exactly what happened on Friday.
The good news is, this isn’t a super common thing for exchanges to do (they may do it once or twice per year) – but it does feel like something that needs some improvement.
The Runes Protocol has gone a long way to help solve for this and there are probably other solutions being worked on as we speak.
Reason #4283 why we love crypto: constant innovation.
