Behind BTC's Repeated Highs: What's the Current State of Bitcoin Network On-Chain Activity?

Author: Will Owens, Research Analyst, Galaxy Digital; Translation: Jinse Finance xiaozou

With the emergence of digital asset treasury companies and Bitcoin's price reaching all-time highs, the core value proposition of the Bitcoin network has gradually faded: a decentralized, censorship-resistant monetary system designed to provide permissionless global value transfer.

Since the decline of non-monetary activity on the Runes and Ordinals protocols in late 2024, Bitcoin on-chain usage has declined sharply. We are now seeing an increasing number of "free" or nearly free blocks, meaning that the average transaction fee per virtual byte (the standard unit for measuring Bitcoin transaction size) is only 1 satoshi (one-hundred-millionth of a Bitcoin) or less. While this is a short-term benefit for users seeking cheap and fast transfers, it also puts a strain on the mining economy, which is already under pressure from the 2024 halving. This article analyzes the structure of the Bitcoin fee market to assess on-chain dynamics and their impact on the network's economic health. It also examines the evolution of OP_RETURN transactions and their usage patterns. This analysis is particularly relevant given the controversy surrounding the upcoming release of Bitcoin Core v30—the open-source software that defaults to allowing larger transactions and more OP_RETURN outputs. Some in the Bitcoin community have sharply criticized the proposed update, fearing it will lead to a surge in spam transactions. Abstract: Bitcoin fee pressure has collapsed: Since April 2024, the median daily fee has fallen by over 80%, and as of August 2025, approximately 15% of daily blocks are "free." OP_RETURN activity has experienced spikes and dips: During the peak of Runes protocol adoption (Q2-Q3 2024), OP_RETURN transactions frequently accounted for 40-60% of daily transaction volume; by August 2025, this proportion had fallen to approximately 20%. Lack of mempool activity: Over the past few months, the proportion of partially full blocks has repeatedly spiked to nearly 50%. After the 2024 halving, which reduces the block reward to 3.125 BTC, the dormant mempool may pose challenges to the long-term sustainability of miner revenue. On-chain activity may be replaced by alternatives: Spot Bitcoin ETFs currently hold approximately 1.3 million BTC, most of which has not been physically transferred on-chain. Trading and speculation are shifting to alternative Layer 1 platforms like Solana, particularly in use cases like meme coins and NFTs. Over 1.5 million BTC remain stored in traditional P2PK addresses: These bare public key addresses, because their public keys are always exposed on-chain, are considered highly vulnerable to potential quantum computer attacks. Over 6 million BTC remain stored in traditional P2PKH addresses. The P2WPKH address format currently holds the largest share of unspent BTC. 1. Methodology All on-chain data in this article is sourced from Galaxy's internal Bitcoin infrastructure, including our own full node. Unless otherwise noted, statistics reflect the state of the Bitcoin network as of August 12th. Fee Metrics: Calculated using block-level data, including average and median transaction fees, the percentage of "free blocks" (blocks with an average transaction fee ≤ 1 satoshi/virtual byte), and the proportion of partially full blocks. For this study, partially full blocks are defined as blocks with a total block weight below 3.9 million units (relative to a maximum of 4 million). OP_RETURN Analysis: Transaction data is parsed to identify transactions containing the OP_RETURN opcode. The daily OP_RETURN transaction percentage is expressed as a percentage of total transaction volume for that day. Address Format Classification: Unspent outputs are categorized by script type (e.g., P2PKH, P2PK, P2SH, P2TR, P2WPKH). Total balance statistics are as of August 12th. 2. Current Status of the Bitcoin Fee Market: The Bitcoin fee market—the mechanism by which users bid to have their transactions included in the next block—has entered a period of stagnation. While almost all Bitcoin transactions carry a fee, users can choose the amount to pay, and transactions paying higher fees generally confirm faster. After months of network congestion caused by Bitcoin's fungible and non-fungible tokens (Runes and Ordinals, respectively), network fee pressure has shrunk dramatically. Average daily transaction fees have fallen to their lowest level since early 2023. While average and median fees provide a useful overview of market trends, they don't tell the full story. The chart below presents the data at a more granular level: daily transaction fee percentiles by virtual byte price (satoshis/vB). This chart, covering the period from January 2023 to the present, shows the 10th, 25th, 50th (median), 75th, and 90th percentile fees. This perspective not only reflects changes in the median but also provides a more complete picture of the evolution of mempool fee pressure, clearly demonstrating the dramatic narrowing of fee disparity since the end of 2024. The most direct manifestation of this trend is the surge in what we define as "free blocks" (blocks with an average fee ≤ 1 satoshi/vB). These blocks, which were virtually nonexistent in 2024, are now increasingly common. As of this writing, free blocks now account for a significant portion of daily block production, clearly demonstrating the collapse of competition in the blockspace. Meanwhile, the proportion of "partial blocks" remains high. These blocks, while still capable of accommodating more transactions, have not yet reached the 4 million weight unit upper limit. Simply put, Bitcoin's memory pool (the holding area for pending transactions) is often empty; even when it's not, it's filled with transactions that can be processed quickly without incurring high transaction fees. For miners, this phenomenon is worrying. The 2024 halving, which cuts the block reward to 3.125 BTC, had originally expected transaction fees to play a larger role in miner revenue, but the reality is that fee income has dried up. The long-term economic model for Bitcoin's network security relies on a healthy fee market, and 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, memecoin traders are rapidly migrating to faster, cheaper Layer 1 platforms like Solana. When Solana's memecoin trading experience is already so smooth, enduring the Runes protocol's poor user experience is clearly not worth it.

3OP_RETURNOperation Code

Bitcoin's OP_RETURN opcode, introduced in 2014, allows users to embed up to 80 bytes of arbitrary data in transaction outputs. These outputs are verifiably unspendable and typically carry no BTC value, thus not increasing the size of the unspent transaction output (UTXO) set. UTXOs are discrete units of Bitcoin that wallets can use for future transactions and form the cornerstone of Bitcoin's ledger system—each transaction consumes existing outputs and creates new ones. Sending BTC to an OP_RETURN output permanently locks up these coins, but in return, opens up a new use case: permanently storing information or metadata on the blockchain. The use of this script type has surged over the past 18 months. OP_RETURN transactions reached a record high during the launch of the Runes protocol in April 2024 (block height 840,000, coinciding with the most recent miner block reward halving). As shown in the chart below, these primarily non-monetary transactions dominated block space at their peak. With the waning of Runes activity, OP_RETURN usage has gradually declined. However, developers and institutions continue to use it to anchor data on-chain. For example, a few weeks ago, Galaxy broadcast a historic customer transaction of 80,000 BTC via OP_RETURN. OP_RETURN is being used for innovative purposes. A group named after the legendary Wall Street investment bank Salomon Brothers has begun using OP_RETURN to send legal notices to dormant Bitcoin wallets. These on-chain messages, citing the "property abandonment principle," require wallet owners to respond within 90 days, or "Solomon" (an organization that holds trademark rights but is unrelated to Citigroup, the original investment bank) will pursue fund recovery rights on behalf of clients (however, it remains unclear how the organization controls these wallets). While this innovative practice of directly anchoring Bitcoin to legal instruments has sparked controversy in the context of the Bitcoin Core client version 30.0 update. This upcoming open-source software release will relax the default limit on OP_RETURN payloads, allowing single transactions to include larger data sizes and multiple outputs. Critics point out that while OP_RETURN outputs do not inflate the UTXO set (due to their verifiably unspendable nature), they still take up block space, potentially crowding out monetary transactions and threatening the long-term sustainability of the network. The Bitcoin Core development team responded that the final decision on whether to forward or package larger OP_RETURN transactions remains in the hands of node operators and miners. While transaction fee trends can reflect Bitcoin's short-term dynamics, the UTXO set itself offers a better picture of BTC's long-term distribution within the network. By categorizing unspent outputs by script type (i.e., address format), we can observe the adoption of each address type and its impact on spendability, security, and quantum resistance. The P2PKH (Pay-to-PubKey-Hash) format became mainstream after Bitcoin's early stages and still holds a significant amount of BTC (over 6 million). However, newer formats have gained popularity in recent years: P2WPKH (native Segregated Witness), launched in 2017, has become the largest holder of unspent BTC, while P2TR (Taproot), launched in 2021, is steadily growing and supporting more advanced scripting use cases. The figure below shows the balance distribution of each script type as of August 11th. This data also provides a basis for future discussions of security risks. The traditional P2PK (Pay-to-PubKey) format, primarily used for early coin creation transactions, is inherently vulnerable to quantum computing attacks because it exposes the full public key on-chain before spending. Other formats do not expose the public key before the output is spent. However, once the output is spent (especially when the address is reused), the public key is also exposed, exposing these coins to similar risks. 5. Conclusion: Bitcoin on-chain activity has entered a period of decline, but network infrastructure continues to evolve. In the short term, low fees benefit users looking to merge UTXOs or transfer assets cost-effectively. However, the long-term outlook is more ambiguous—the shrinking fee market raises substantial questions about network security. With the block reward reduced to 3.125 BTC, miner incentives are increasingly reliant on fluctuations in organic demand. If more BTC trading volume continues to flow to ETFs, custodians, and high-speed competing chains, the core network could become a clearing layer lacking sufficient settlement activity.

With the proliferation of "Bitcoin paper wallets" and stagnant fee revenue, Bitcoin's security model is increasingly reliant on a demand for usage that is no longer guaranteed. While fee volatility is not a new phenomenon, Bitcoin does need more substantive reasons to use the chain.