What are bitcoin transaction fees?

Welcome back to our series on everything bitcoin! In this post, we’ll go over bitcoin transaction fees: what they are, how they work, and why you should always pay the right amount.

Every time a Bitcoin transaction is made, miners need to expend computing power to mine it into a block. How are miners incentivized to confirm bitcoin transactions? The network offers a built-in reward called a miner fee.

Miners are eligible to win all the transaction fees in a block, as well as the block reward at the time. Good services will dynamically calculate miner fees. Some wallets support custom fees, and some do not.

You find out how high bitcoin transaction fees are through wallet apps, or by searching online. Some wallet apps will dynamically inform users based on network conditions. The bitcoin network operates with two major constraints: the average block creation time in 10 minutes, and the block size limit of 1 megabyte. The Lightning Network protocol has enabled faster transaction speeds.

Bitcoin miner fees operate on the principle of supply and demand — if there is a high amount of traffic on the network, miners will require correspondingly high fees. If you pay a very high fee, you can get the speed equivalent of priority airmail for your transaction. The size of the transaction also affects the miner fee, in the same way that postage varies based on the size and weight of a package.

Miners decide which transaction to confirm first based on the miner fee. If you want your transaction to be confirmed quickly, it’s best to provide an appropriate miner fee. If you don’t include a competitive fee, your transaction runs the risk of never being confirmed.

Even with appropriate fees, bitcoin transactions are comparatively slow. For reference, Visa averages approximately 1,700 transactions per second (tps), while bitcoin averages 4.6 tps.

Bitcoin is actually one of the slower cryptocurrencies due to the relatively small block size (one megabyte per block) and 10-minute average block generation time. Block size is hardcoded, but block generation time (TB) is adjusted by changing the difficulty of the hashing puzzle in order to keep block generation time at around 10 minutes.

Transactions speeds can also be slowed down by multiple factors, including network congestion, lack of miners, and any other number of factors.

Transaction times reached legendary highs in 2017, during the ICO boom, with users paying exorbitant fees and waiting hours for their transactions to go through.

Thanks for reading! If you’re interested in more articles on bitcoin and everything crypto, why not follow us on Twitter @Coincub1?

See you next time!

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