Will the adjustment of the difficulty rate help with lowering transaction fees?

[kryptqnick]

My friend and I were discussing Bitcoin transaction fees yesterday, and he believes that transaction fees are related to the difficulty rate, and since the difficulty rate is adjusted roughly every two weeks, transaction fees will go down after the adjustment. I wasn't so sure, as I've never thought of it this way and thought that the mining difficulty and transaction fees are two very separate things that don't affect one another. There are too many transactions, and thus the transaction fees have spiked, but I don't see how the hash rate has got to do much with it.
I asked ChatGPT and got the following reply:

No, transaction fees in the Bitcoin network are not directly related to mining difficulty or hash rate.
Mining difficulty is a parameter that adjusts every 2016 blocks (approximately every two weeks) to ensure that blocks are added to the blockchain at a constant rate of one block every 10 minutes on average. The difficulty adjustment is based on the total amount of computing power (hash rate) that is currently being used to mine Bitcoin.
Transaction fees, on the other hand, are determined by the supply and demand for block space in the Bitcoin network. When the demand for block space exceeds the available supply, transaction fees will increase as users compete to have their transactions included in the next block. This can happen regardless of the current mining difficulty or hash rate.
So, while it is true that the mining difficulty adjustment can indirectly affect the transaction fees, it is not a direct relationship. The mining difficulty adjustment is designed to ensure the stability of the network, while the transaction fees are determined by the market forces of supply and demand for block space.

While ChatGPT can often be helpful, it can also hallucinate responses that sound like they make sense but they are actually incorrect. What do you think about this matter?

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[Charles-Tim]

Assuming, if mining hashrates increase, there is possibility that most blocks at the time would be mined before 10 minutes. But that is why the difficulty will be increased so that the block mined would be approximately 10 minutes on average.

If mining hashrates is reduced, most blocks would be mined mined after 10 minutes. Mining difficulty will be ajusted to make blocks to me mined approximately at 10 minutes on average.

Which means mining difficulty can not help.

[stompix]

My friend and I were discussing Bitcoin transaction fees yesterday, and he believes that transaction fees are related to the difficulty rate, and since the difficulty rate is adjusted roughly every two weeks, transaction fees will go down after the adjustment.

There is absolutely nothing between those two, fees can go up and down because of a hype start or the end of it and the difficulty will simply follow the hashrate which is determined by miners and how much gear they put online or offline.

Temporarily!!!!
A huge spike in hashrate as a huge mining farm comes online might lead to more blocks than normal, so more blocks, more space, more transactions with lower fees than normal getting confirmed. But this small advantage will stop once the adjustment happens!

[348Judah]

It may not go along way and i will admit probably that's not going to be a lasting solution for the transaction fee issues, if we take a look at the present condition with this encounter, it's directly coming fom the introduction of Ordinals and not miners challenges, but miners can maneuver their way through in providing a temporary solution by making adjustments on the bitcoin mining difficulty but that still doesn't solve the problem because at the end, the more the ordinals progresses in taking over every mining blockspace the higher the transa fee will go and more difficulty may set in for miners in confirming transactions abd with the hype load on mempool with every u confirmed transaction due to low fee, the more the ordinals the higher the transaction fee, except miners together with developers build a protocol that kicked against every block constituting ordinals on a particular range or fee.

[Zaguru12]

but miners can maneuver their way through in providing a temporary solution by making adjustments on the bitcoin mining difficulty

Just like what Charlie-Tim said there’s nothing that can be done by miners because once they increase the hash rate which is the only way to reduce the time bewteen block intervals, more transactions added into blocks at faster rate but this will simply be adjusted again by the next difficulty calculations so that the average 10 minutes set aside for the 2016 blocks to be mined is tempered with. Should the hash rate be increased again the difficulty will still make it his adjustment after every 14 days, so it is certainly not a solution.

[stompix]

Should the hash rate be increased again the difficulty will still make it his adjustment after every 14 days, so it is certainly not a solution.

Not only it's temporary but it's also at most a one to two time fix.
Miners can't just increase the hashrate out of the blue, they need gear to do so, and the cost for doing grows exponentially, as an example of what this would imply, with a 10% increase, meaning around 14 extra blocks a day.

We have around 350 Exahash/s in order to get 10% we need 35Exahash, which means around 250k!!! S19xp miners so
- $1,375,000,000 for new gear each two weeks
- 750 MW of power for them every two weeks.

Of course, not to mention that if we do this 7 times the hashrate would double, making mining less profitable and miners dropping, so you will get the reverse reaction after the initial spike.

Nothing that could have an impact that can be done from the miner's side!

[mendace]

When there are many transactions waiting to be confirmed and available block space is limited, users have to compete to get their transactions included in the next block.  This competition can lead to increased transaction fees.  Conversely, when demand decreases and block space is plentiful, transaction fees can decrease.

[Ben Barubal]

    I just noticed that when Bitcoin's value increases, its transaction fees decrease, and when its value decreases, its fees increase. Just like before, I was going to try to transfer Bitcoin to an exchange platform for 50$ in btc, but the fees are so high around 21.88$ that the value when I should make the transaction is around 27k$ almost each bitcoin.

    But after the CPI event which increased by only around 4.9%, the value of Bitcoin suddenly rallied which in turn suddenly reduced its fees to around 6-7$. So bitcoin should gradually increase in value, where it decreases, it will immediately increase again.

[tranthidung]

My friend and I were discussing Bitcoin transaction fees yesterday, and he believes that transaction fees are related to the difficulty rate, and since the difficulty rate is adjusted roughly every two weeks, transaction fees will go down after the adjustment. I wasn't so sure

Nobody can be sure about that.

Difficulty, difficulty adjustment, network hashrate, transaction demand (waiting transactions in mempools) interact with each other and impact on transaction fee.
If difficulty adjusts to lower than now, blocks can be found with faster average block time that can be helpful to clear mempools at faster rate. However it is only true if the rate of new waiting transactions in mempool remains the same like now. In reality we are unsure what will happen with that rate in next 2 weeks and later.

Another factor is hypes around Ordinals, BRC20 that can contribute to add transactions with very high fee rates at tip of mempools. It will cause domino effects and late comers will have to increase their fee rates if they don't want to wait a few weeks. You can not control how people react with their transaction need and mempools, fee rates.

Sum up, it is a very complicated scenario but I believe that sooner or later, the hype will no longer hot than now. From DeFi, NFTs, GameFi, Metaverse on Ethereum ERC20 chain, I believe it won't be different on Bitcoin blockchain.

[o_e_l_e_o]

The current fees are quite clearly due to ordinals and not due to the hashrate.

At the current moment in time we are around 24 blocks behind where we "should" be in this difficulty epoch, if we were sticking to the 10 minute per block average. Our average block time is somewhere around 10 minutes and 17 seconds. This means that as things stand, the next retargeting will only drop the difficulty by around 2%.

Those 24 missing blocks would, at most, remove 24 MvB of transactions from the mempool. We have almost 10x that weight of transactions waiting to be confirmed if you include all the ones which have been dropped over the last few days.

So to answer your friend - at the next retargeting the difficulty will reduce slightly, which although it will result in a higher throughput and therefore a decrease in fees, the impact will be very small. The much larger impact (which we are already seeing) is the pump and dump scams which were being orchestrated on the network are already starting to lose their shine and the number of ordinal transactions are rapidly reducing.

[buwaytress]

In the very very short term, perhaps, but I think it's minuscule. Aim of difficulty is to get block times to the average time, that's all. And if it's lowering, it's because it was taking a bit above the average in the last 2 weeks. In fact, judging from most recent adjustment, barely a couple percent.

With luck and variance, more blocks in this period would only mean higher difficulty in the next anyway...

[kryptqnick]

stompix, thank you for this clarification. That's what I thought as well, but I wasn't sure because my friend generally understand Bitcoin more than I do.
Thanks to all of you for sharing your thoughts.
I do agree that it's a temporary issue that will resolve itself, just like it always does. But there's nothing miners can do to improve the fees.
As for us, we can just avoid making transactions for the time being, unless it's urgent, to avoid contributing to the congestion.

[o_e_l_e_o]

Since my post above not even 24 hours ago, we have now completely caught up with the deficit of blocks and are indeed 1 block ahead of where we should be. We still have over 200 MvB of transactions to process, and at present the difficulty is set to increase at the next retargeting. This should be more than enough to prove to your friend that his hypothesis is incorrect.