Binance CEO brushes off bitcoin withdrawal issues after normal service resumes

Binance CEO Changpeng Zhao this morning dismissed concerns after the exchange paused and restarted bitcoin withdrawals twice in less than 12 hours.

Zhao said in response to comments about the exchange's bitcoin withdrawal issues ,"4" — his personal code for "Ignore FUD, fake news, attacks, etc."

"4. There are some FUD about BTC withdrawal issues," Zhao, known by his initials "CZ," tweeted Monday. He pointed to Bitcoin network's high transaction fees as the main reason for the temporary withdrawal halts.

Some users had expressed concerns that Binance in fact halted withdrawals because of billions of dollars of withdrawals from the exchange and worried that the network congestion explanation could be cover for the company needing to replenish its hot wallets. Binance quickly addressed those concerns, saying: "We're aware that some data are showing a large volume of outflows from Binance. This 'outflow' are actually movements between Binance hot and cold wallets due to the BTC address adjustments."

Binance indeed moved 157,000 bitcoin (worth around $4.4 billion) between its hot and cold wallets on Sunday, according to CryptoQuant's head of research Julio Moreno. Binance's net withdrawals were likely only around 10,100 bitcoin (over $282 million), Moreno added.

Binance's bitcoin withdrawal pauses and resumptions

Binance first paused bitcoin withdrawals for around two hours on Sunday afternoon U.S. time, citing network congestion. Its second pause occurred Sunday evening U.S. time and normal service resumed after about two hours.

Binance said a large volume of pending transactions on the Bitcoin network caused the withdrawal issues. Transactions were pending because the bitcoin transaction fees that had been set by Binance did not anticipate the transaction surge. Binance reacted by increasing the fees for pending transactions to be picked up by miners, and then resumed withdrawals.

In addition to the block rewards, bitcoin miners also get transaction fees. When users send Bitcoin transactions, they have the option to attach a fee to incentivize miners to prioritize their transactions. Higher fee transactions generally get processed faster.

"To prevent a similar recurrence in the future, our fees have been adjusted. We will continue to monitor on-chain activity and adjust accordingly if needed," Binance said. "Our team has also been working on enabling BTC Lightning Network withdrawals, which will help in such situations."

Bitcoin Lightning Network is a Layer 2 scaling solution built on top of the Bitcoin blockchain. Lightning Network fees are generally lower compared to on-chain Bitcoin transaction fees because the Lightning Network operates off-chain, reducing the burden on the main blockchain.

Bitcoin network congestion

Pending transactions on the Bitcoin network hit a record high of over 400,000 on Sunday, higher than anything seen during the bull runs of 2018 and 2021, according to on-chain data. The number is still higher than 400,000.

The recent launch of the Ordinals protocol appears to be the main cause of Bitcoin network congestion and high fees. Ordinals, created by Bitcoin developer Casey Rodarmor, facilitates the creation of NFTs on the Bitcoin blockchain. Ordinals Inscriptions continue to climb, as The Block reported recently. Inscriptions, similar to NFTs, are metadata inscribed on a satoshi, the lowest denomination of a bitcoin. Using Ordinal Inscriptions, people can directly inscribe text, images and even videos on the Bitcoin blockchain.

The price of bitcoin continues to trend lower and is now at $28,170, down 2.8% in the last 24 hours, according to CoinGecko data.