Batching With The Big Boys
Coinbase recently announced that they are implementing transaction batching for customers sending Bitcoin transactions.
This might have you asking ‘What the heck is transaction batching?’, or ‘Why should I even care?’
Seeing as Coinbase are one of the biggest users of the blockchain, this is kind of a big deal. It is an efficiency which has the direct effect of reducing the blockspace requirements for their transactions, and also reducing fees for customers.
How A Bitcoin Transaction Works
Bitcoin works on a UTXO (unspent transaction output) model. This is different from an account based system, which is what most people are familiar with.
Your UTXO’s are comprised of all of your separate bitcoin addresses which have a balance.
When you make a transaction, you take a UTXO (or several if required) and use them as an input into your transaction. These are the funds you will be sending.
You then specify the address you would like to send to, and also a change address for any bitcoin leftover from the transaction. The transaction structure also includes other necessary data like signatures, version details and other components.
Each of these items is measurable as data, and the size of the data is what you will pay for as fees when sending the transaction.
How Does Transaction Batching Help
Bitcoin transaction fees are paid as sats per byte, and the size of a bitcoin transaction to a single recipient is around *230 bytes. By using the same transaction and simply adding another output, to send to two recipients, the transaction size is around 260 bytes.
This is a large saving in size when compared to the size of two separate, single-recipient transactions which would be around 460 bytes!
*NOTE- Bitcoin transaction size is technically measured in 'weight units' or 'vbytes'. For legacy transactions the vbyte size is the byte size multiplied by four. Click here to learn how the vbyte size is calculated for Segwit transactions.
These savings are possible because the majority of the data will only need to be used once, instead of reused for every separate transaction. You will also only need one change address, instead of a new change address for each separate transaction.
The savings are compounded even further when adding more output recipients to the same transaction as demonstrated in the following graph.
A pretty good comparison is that of a mail truck. It makes sense to load up the truck with lots of mail, rather than delivering one single letter at a time. That way the overheads are spread out over many items.
For businesses who perform a high volume of transactions, batching is a no-brainer as the blocksize and ‘fee per payment’ savings are immense. It is possible to include thousands of outputs in a single Bitcoin transaction!
With blockspace such a valuable commodity, it is efficiencies like transaction batching which can help take the strain off the blockchain.
When large players like Coinbase act responsibly by using best practise, it is not only their users that benefit, but the whole Bitcoin ecosystem.
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