Twelve percent of the Bitcoin transactions are realized through batching, according to an investigation performed and published by the user Hasufly on Medium.com. This number of transactions mobilizes between 30% and 60% of the entire transaction volume of Bitcoin. Batching has become highly popular and expanded among the cryptocurrency exchanges, because it provides lower commissions and also scales the Bitcoin blockchain network.
Hasufly says batching is not only widely spread in the Bitcoin blockchain network, but it also represents 40% of all the output of value on the Bitcoin platform.
The transactions processed through batching combine more than three payments in a single operation with the goal of saving space in the blocks and lowering the prices of the commissions for payments. This way, the users that use batching are literally packaging transactions in order to process more payments with a single movement, which is a practice that is widespread among the users that realize a high volume of transactions, which is the case with the cryptocurrency exchanges.
This method was proposed by a developer called David Harding in order to solve the problem generated by the high costs of the commissions for payments, which became acute when last year the Bitcoin blockchain network reached its historical maximum of transactions processed in a single day – a total of 375,000 transactions. This caused the commissions to go up to 25 US dollars on average in the middle of December last year. Hasufly writes: “In mid-November when fees hit double digits in USD terms, users began a concerted campaign to convince exchanges to be better stewards of block space. Both Segwit and batching were held up as meaningful approaches to maximize the compression of Bitcoin transactions into the finite block space available.”
To better understand the implications of batching it is important to know that Bitcoin does not calculate the transactions in balance, but instead it uses a model called Unspent Transaction Output (UTXO). UTXO refers to the quantity of Bitcoin inputs that still have not been transferred by the users and are stored in a cache in order to be able to verify how much inputs can be used by the user that owns has the private keys associated with that UTXO. The UTXOs spent in the transaction are called inputs and the UTXOs generated during the transaction are called outputs.
Hasufly assured that due to the fact that the transactions in batching are based on the premise that there is no codified limit for the number of transactions that can fit in a block, this type of operations engages the UTXO model and provides a greater economic and administrative efficiency. This is what the analyst says: “Unknown to some, there is no hardcoded limit to the number of transactions that can fit in a block. Instead, each transaction has a certain size in megabytes and constitutes an economic incentive for miners to include it in their block. Because miners have limited space of 2 MB to sell to transactors, larger transactions (in size, not bitcoin!) will need to pay higher fees to be included. Additionally, each transaction can have a virtually unlimited number of inputs or outputs — the record stands at transactions with 20,000 inputs and 13,107 outputs.”
Through the batching mechanism, the users can include various UTXOs at the moment when the rates are the lowest, which allows to stack a bigger and unlimited UTXO that consolidates all the inputs sent in a large single transfer. This way, the developers bring the opportunity to lower the commissions in the network: “Users who frequently make transfers (especially within the same block) can include an almost unlimited amount of outputs (to different people!) in the same transaction. That is called transaction batching. A typical single output transaction takes up 230 bytes, while a two output transaction only takes up 260 bytes, instead of 460 if you were to send them individually.”
This operation allows that a single Bitcoin transaction could aggregate thousands of economic transfers, which is a methodology not used by any other method of payment, according to the analyst. Nowadays, the stacked transactions that have more than three outputs prevail, but there are also colossal transactions with around 100 codified inputs.
Among the users in the Bitcoin blockchain network that use batching the most are the mining groups and the cryptocurrency exchanges operating on the cryptocurrency market. For example, platforms such as Binance, Bitfinex and Shapeshift are already using this method to perform their operations, and Coinbase and GDAX are interested in started using batching in the future. Hasufly says: “As far as batching is concerned, the campaign to get exchanges to batch appears to have persuaded Bitfinex, Binance, and Shapeshift to batch. Coinbase/GDAX have stated their intention to begin batching, although they haven’t managed to integrate it yet. As far as we can tell, Gemini hasn’t mentioned batching, although we have some mixed evidence that they may have begun recently. If you know about the status of batching on Gemini or other major exchanges please get in touch. So some exchanges have been batching all along, and some have never bothered at all.”
Due to the high adoption by the cryptocurrency exchanges, today 12% of the Bitcoin transactions are realized through batching, which represents 40% of the total outputs in the Bitcoin blockchain network and between 30% and 60% and even 70% in the peak moments of the total number of bitcoins moved in the network.
Hausfly assured that even though the majority of the stacked blocks have between three and five inputs, 183 extra large batches were reported in the last six months. These extra large batches transported a total of 23 million outputs and 30 million of the total value in the network.
Another important point to consider while bearing in mind the characteristics of the stacked transactions and their extended adoption in the network, is the method of calculating the behavior of the network. According to the analyst, he advises investigators and users of the Bitcoin blockchain network not to use the transaction average of Bitcoin to calculate the behaviours of the network, since the average is affected by batching.
Hasufly says: “The default measure of Bitcoin’s performance should be “payments per day” rather than transaction count. This also makes Bitcoin more comparable with other UTXO chains. They generally have significantly variable payments-per-transaction ratios, so just using payments standardizes that.”
He concludes that the batching practices, together with the activation of SegWit, allows the users to have a much more economical platform and with a greater capacity to realize operations faster and more efficiently, which are the characteristics the users have been requesting for a while now: “Today, around 12% of all transactions on the Bitcoin network are batched, and these account for about 40% of all outputs and between 30–60% of all transactional value. The fact such that a small set of transactions carries so much economic weight makes us hopeful that Bitcoin still has a lot of room to scale on the base layer, especially if usage trends continue.
Lastly, it’s worth noting that the increase in batching on the Bitcoin network may not be entirely due to deliberate action by exchanges, but rather a function of its recessionary behavior in the last few months. Since batching is generally done by large industrial players like exchanges, mixers, payment processors, and mining pools, and unbatched transactions are generally made by normal individuals, the batched/unbatched ratio is also a strong proxy for how much average users are using Bitcoin. Since the collapse in price, it is quite possible that individual usage of Bitcoin decreased while “industrial” usage remained strong. This is speculation, but one explanation for what happened.
Alternatively, the industrial players appear to be taking their role as stewards of the scarce block space more seriously. This is a significant boon to the network, and a nontrivial development in its history. If a culture of parsimony can be encouraged, Bitcoin will be able to compress more data into its block space and everyday users will continue to be able to run nodes for the foreseeable future. We view this as a very positive development. Members of the Bitcoin community that lobbied exchanges to add support for Segwit and batching should be proud of themselves.”