Author: Will Owens, Research Analyst at Galaxy Digital; Translation: Jinse Finance Xiaozou
With the emergence of digital asset treasury companies and Bitcoin prices breaking historical highs, people have gradually forgotten the core value proposition of the Bitcoin network: a decentralized, censorship-resistant monetary system designed to provide permissionless global value transfer.
Since the decline of non-monetary activities of the Runes and Ordinals protocols at the end of 2024, the usage of the Bitcoin chain has sharply shrunk. Nowadays, we see an increasing number of 'free' or nearly free blocks, meaning the average fee paid per virtual byte (the standard unit for measuring Bitcoin transaction size) is only 1 satoshi (one hundred millionth of a Bitcoin) or even lower. While this presents a short-term benefit for users seeking cheap and fast transfers, it adds a burden to the mining economy already under pressure from the 2024 halving.
This article evaluates the structure of the Bitcoin fee market to assess real on-chain dynamics and their impact on the health of the network economy, while also examining the evolution of OP_RETURN transactions and their usage patterns. Given the controversy surrounding the upcoming v30 version of the Bitcoin Core client—this open-source software will by default allow larger capacities and more OP_RETURN outputs in a single transaction—related analysis is particularly relevant. Some members of the Bitcoin community are concerned that this move may lead to a flood of spam transactions, sharply criticizing the proposed update.
Article Summary
Bitcoin fee pressure has collapsed: since April 2024, the daily median fee has decreased by over 80%; as of August 2025, about 15% of daily blocks are 'free blocks'.
OP_RETURN activity has experienced a surge and a retreat: During the peak period of Runes protocol adoption (Q2-Q3 2024), OP_RETURN transactions often accounted for 40-60% of daily transaction volume; as of August 2025, this proportion has decreased to around 20%.
Memory pool activity is lacking: In recent months, the proportion of non-full blocks has repeatedly surged to nearly 50%; after the 2024 halving reduces the block reward to 3.125 BTC, the dormant memory pool may challenge the long-term sustainability of miner income.
On-chain activity may be replaced by alternative solutions: Bitcoin spot ETFs currently hold about 1.3 million BTC, most of which have not undergone substantial on-chain transfers; trading and speculative activity is shifting to alternative Layer 1s like Solana, especially in use cases like meme coins and NFTs.
Over 1.5 million BTC are still stored in traditional P2PK addresses: these bare public key addresses are considered highly vulnerable to potential quantum computing attacks due to the public key always being exposed on-chain.
Over 6 million BTC are still stored in traditional P2PKH addresses.
The P2WPKH address format currently holds the largest share of unspent BTC.
1. Method
All on-chain data in this article comes from Galaxy's internal Bitcoin infrastructure, including our self-built full nodes. Unless otherwise specified, statistical data reflects the state of the Bitcoin network as of August 12.
Fee indicators: Calculated using block-level data, including average/median fees, the proportion of 'free blocks' (blocks with an average fee of ≤1 sat/virtual byte), and the proportion of non-full blocks. In this study, we define blocks with total weight below 3.9 million weight units (relative to a maximum of 4 million) as non-full blocks.
OP_RETURN analysis: Analyzing transaction data to identify transactions that include the OP_RETURN opcode. The daily proportion of OP_RETURN transactions is expressed as the percentage of that type of transaction relative to the total transaction volume for the day.
Address format classification: Unspent outputs are categorized by script type (such as P2PKH, P2PK, P2SH, P2TR, P2WPKH). The total balance statistics are as of August 12.
2. Current Status of the Fee Market
The Bitcoin fee market—where users bid to have their transactions included in the next block—has entered a stagnation phase. Although almost all Bitcoin transactions come with fees, users can choose the amount they pay, and transactions with higher fees usually confirm faster. After months of network congestion caused by Bitcoin fungible/non-fungible tokens (Runes and Ordinals, respectively), current network fee pressure has sharply shrunk. The daily average transaction fee has dropped to its lowest level since early 2023.
While average fees and median fees can effectively summarize market trends, they cannot reflect the complete picture. The following diagram presents the data through a more refined dimension: daily transaction fee percentiles calculated by sat/vB.
This chart covers the time span from January 2023 to the present, displaying the fee levels at the 10th, 25th, 50th (median), 75th, and 90th percentiles. This perspective not only reflects changes in the median but also presents a complete picture of the evolution of fee pressure in the memory pool, clearly revealing the sharp narrowing of fee differences since the end of 2024.
The most intuitive reflection of this trend is the surge in the number of 'free blocks' (blocks with an average fee of ≤1 sat/vB). Such blocks were virtually non-existent in 2024 but have become increasingly common now. As of the writing of this article, free blocks occupy a significant proportion of daily produced blocks, fully confirming the collapse of competition intensity for block space.
At the same time, the proportion of 'non-full blocks' remains high. These blocks still have space to accommodate more transactions but have not reached the limit of 4 million weight units. In short, Bitcoin’s memory pool (the waiting area for pending transactions) often remains vacant; even when not empty, it is filled with transactions that can be processed quickly without paying high fees.
For miners, this phenomenon is worrisome. The 2024 halving has reduced each block's reward to 3.125 BTC, and it was originally expected that transaction fees would play a more significant role in miner income, but the reality is that fee income is drying up. The long-term economic model of Bitcoin network security relies on a healthy fee market, and the current market conditions are far from 'healthy.'
The rise of custodial solutions and 'Bitcoin paper wallet' products (whether ETFs or other institutional derivatives) may be suppressing on-chain activity. Meanwhile, meme coin traders are accelerating their migration to faster and cheaper Layer 1s like Solana—when the meme coin trading experience on Solana is so smooth, enduring the poor user experience of the Runes protocol clearly does not make sense.
3. OP_RETURN opcode
The Bitcoin OP_RETURN opcode was launched in 2014, allowing users to embed up to 80 bytes of arbitrary data in the transaction output. These outputs have verifiable unspendability and typically carry no BTC value, thus not increasing the size of the unspent transaction output (UTXO) set. UTXOs are discrete Bitcoin units that wallets can use for future transactions, forming the foundation of Bitcoin's accounting system—every transaction consumes existing outputs and generates new outputs. If BTC is sent to an OP_RETURN output, these coins will be permanently locked, but this opens up a new use case: permanently storing information or metadata on the blockchain.
The usage of this script type has surged over the past 18 months. During the launch of the Runes protocol in April 2024 (block height 840,000, coinciding with the last miner block reward halving), the volume of OP_RETURN transactions reached a historical record. As shown in the figure below, these primarily non-monetary transactions dominated block space during the peak period.
As the Runes activity cools, the current usage of OP_RETURN has gradually receded. However, developers and institutions continue to utilize it for anchoring data on-chain. For example, a few weeks ago, Galaxy broadcast a historic customer transaction of 80,000 BTC through OP_RETURN.
OP_RETURN is being assigned innovative uses. An organization named after the Wall Street legend Salomon Brothers has begun using OP_RETURN to send legal notices to dormant Bitcoin wallets. These on-chain messages cite the 'abandonment principle,' requiring wallet owners to respond within 90 days, or 'Salomon' (the organization holds the trademark but is not related to Citigroup, which inherited the original investment banking business) will claim funds on behalf of clients (though how this organization controls these wallets remains unclear).
While this is an innovative practice of directly anchoring legal documents to Bitcoin, it has sparked controversy in the context of the Bitcoin Core client version 30.0 update. The upcoming open-source software will relax the default limit on OP_RETURN data payloads, allowing a single transaction to contain larger capacities and multiple data outputs. Critics point out that although OP_RETURN outputs do not inflate the UTXO set (due to their verifiable unspendability), they still occupy block space, which may crowd out monetary transactions and threaten the network's long-term sustainability. The Bitcoin core development team responded that the decision to forward or package larger OP_RETURN transactions ultimately rests with node operators and miners.
4. Bitcoin Holdings by Script Type
While fee trends can reflect short-term dynamics of Bitcoin, the UTXO set itself reveals the long-term distribution of BTC within the network. By classifying unspent outputs by script type (i.e., address format), we can observe the adoption of various address types and their impact on spendability, security, and resistance to quantum computing.
The P2PKH (Pay-to-PubKey-Hash) format became mainstream after the early stages of Bitcoin and currently still holds a large amount of BTC (over 6 million). However, in recent years, new formats have gradually gained popularity: the P2WPKH (native SegWit) introduced in 2017 has become the largest holder of unspent BTC, while the P2TR (Taproot) introduced in 2021 is steadily growing, supporting more advanced script use cases.
The following diagram shows the balance distribution of various script types as of August 11. This data also provides a basis for discussing future security risks.
Traditional P2PK (Pay-to-PubKey) format was primarily used for early coin creation transactions, which is inherently vulnerable to quantum computing attacks—because this format exposes the complete public key on-chain even when unspent.
Other formats will not expose the public key before the output is spent. But once spent (especially when addresses are reused), the public key will also be exposed, putting these coins at similar risk.
5. Conclusion
Bitcoin on-chain activity has entered a sluggish period, but the network infrastructure continues to evolve.
In the short term, low fees benefit users looking to consolidate UTXOs or transfer assets at low costs. However, the long-term outlook is more ambiguous—the shrinking fee market raises substantial doubts about network security.
Against the backdrop of block rewards having been reduced to 3.125 BTC, miner incentives are increasingly dependent on fluctuations in organic demand. If more BTC transaction volume continues flowing to ETFs, custodial institutions, and fast competitive chains, the core network may end up lacking sufficient settlement activity.
With the expansion of 'Bitcoin paper wallets' and stagnant fee income, the Bitcoin security model is increasingly relying on a usage demand that is no longer guaranteed. While fee fluctuations are not a new phenomenon, Bitcoin indeed needs more substantial reasons for using the chain.
