Bitcoin Transaction Fees
In the system we know today, bank transactions go through multiple trusted third parties before completing. A fee is collected every time it passes through each step. This can add up making smaller or micro-transactions impractical. Companies like Visa and Mastercard use percentage-based fees that change depending on the amount of the transaction. Since bitcoin transactions are sent directly from wallet to wallet, there are fewer steps needed to complete. However, transactions must be confirmed and recorded on the blockchain by the miners. Transaction fees for Bitcoin are different from fees charged by banks. The Bitcoin network suggests fees based on the amount of data being sent. While these fees are optional, the amount you pay will decide how fast your transaction is processed.
Why We Pay Bitcoin Transaction Fees
Bitcoin miners use expensive computing equipment and a lot of electricity to confirm and secure transactions. These transactions are stored in blocks. When the block becomes full, it is added to the blockchain and the miner is rewarded for processing the block along with any transaction fees attached. Miners are allowed to choose which transactions to confirm first based on the amount of fees attached. If you decide to choose a low fee or no fee at all, your transaction could take days or weeks to confirm. The network might even eventually reject the transaction and return the funds to your wallet. Larger fees will entice the miners to choose your transaction first.
How Are Bitcoin Transaction Fees Calculated?
Fees are calculated by a formula that measures the size of the transaction in bytes. Transactions with large amounts of data attached will need to pay a higher fee. This is because it will take the miner longer to process and confirm the transaction. Luckily, most Bitcoin wallets will automatically calculate the amount for you. There are also web sites like bitcoinfees.info and Estimatefee.com that you can use to find the amount you should pay.