You must pay a network fee for every Bitcoin transaction. Have you ever wondered where these fees go, considering Bitcoin’s decentralization? No worries. We are going to explain everything there is to know about Bitcoin transaction fees in this article and we will even share a secret way to calculate the optimal fee size. Okay, maybe it’s not that secret. But it’s still super useful and will stop you from overpaying or waiting too long for processing.
Bitcoin Transactions Fees are Incentetives for Miners
Miners, who validate new transactions and add them to blocks use pricy, power-hungry, and expense-building hardware. Like everybody, miners work for a reward, which is currently 6.25 BTC per block.
The question arises — if miners already have a prize, why the fees? In reality, we need the fees because the mining reward is temporary. Bitcoin network reduces mining reward by half every 4 years, and in 2140, when the last BTC will be minted, miners won’t have anything left to work for. Transaction fees will be the only incentetive left.
Want to learn why the mining reward decreases over time? Read our article about Bitcoin halving.
Today, transaction fees are voluntary. You don’t have to pay them — at least, there’s no technical obligation — but neither do miners have to pick your transaction. Especially when they have higher-paying options.
Larger fees — Faster Processing. Smaller Fee — Longer Wait
The average Bitcoin network transaction fee is currently around one dollar. But the amount is constantly changing: we suggest to use resources like Ycharts to track exact values.
Here is how to choose the optimal fee:
Pay more than average if your transaction is urgent. The more you pay, the more likely your transaction to end up in the next block. Though, 30% above the norm should be fine. Opt for an average amount if you are fine with waiting a couple of hours.
But keep in mind that the average fee size and waiting time will vary from day-to-day. For instance, when the network is overloaded with transactions, users have to compete for miners’ attention. When BTC price hit its all-time high at the end of 2017, transaction fees reached $40.
You can pay even more. There isn’t any upper limit.
For example, one user paid a $700 fee for a 94,504 BTC transaction in September 2019, moving over one Billion dollars in Bitcoin. It was a huge overpayment: the fee was less than $1 at the time. Of crouse, there is no need to be this generous. 😉
Your Wallet Usually Tells You the Fee Size
Most BTC-compatible wallets monitor the network activity and calculate fees for you. Just follow the hints of your software to set up the amount. If you want more control, go the manual route that we described above.
Bitcoin Transaction Fees Are Many Times Lower than your Bank’s
Especially if you send money abroad, banks can charge an astronomically higher amount than what you would pay for a Bitcoin transaction processing. Here are the main reasons why Bitcoin transaction fees are so low compared to banking fees:
- Banks typically charge a percentage of the amount you send. The bigger the amount, the more you pay for the transfer.
- Bitcoin is a peer-to-peer system, meaning there are no intermediaries between senders and recipients. It doesn’t matter if the recipient lives next door or overseas. In any case, you only pay for the miners’ efforts.
- A cross-border banking transfer often involves two or more banks. Not only does it make things slower, but it also increases the total cost of your transaction — and the fees you pay.
That’s All You Need to Know About Bitcoin Transaction Fees
Calculating a Bitcoin fee for the first time can be a little scary, especially because of those crazy decimals. But in reality, it is as straightforward as it gets: in most cases, your wallet recommends viable settings. And you can always calculate manually for that extra control over the processing time.
While it’s important to know how to set proper fee amounts, it’s also important to know that you can skip paying fees altogether. The Channels app allows you to send Bitcoin, as well as tens of other cryptocurrencies, USD, GBP, and EUR to other Channels users with practically zero fees. Give it a try today!
Originally published at Exscudo Blog. Check it out for more articles on crypto, blockchain, finance, trading, and technology.
