Bitcoin pay transaction fee

How Much Bitcoin Transaction Fees To Pay For Confirmed Transaction?

What is the most asked question in the Bitcoin community? You guessed it right – what is an ideal Bitcoin transaction fee?

Most Bitcoin users and traders who transact in BTC have started asking how much transaction fees one should pay for sending bitcoins.

Are you surprised why so, because Bitcoin was introduced for fast and cheap transactions. But sadly, for now, such is not the case with Bitcoin.

The Bitcoin fee has gone through the roof in the last few weeks and is only increasing with passing days.

2021 Update: Bitcoin fees are back to normalcy.

This is happening because Bitcoin’s 1 MB blocks are almost full and there is simply no space for transactions with low fees.

Therefore, I am here today to tell you everything you need to know about the right Bitcoin fees, but before that, I need to tell you who decides the fee in a free market.

How Is Bitcoin Transaction Fee Decided?

On Bitcoin’s blockchain, the transaction fee is decided by the free market forces.

Free market forces mean anyone is free to set their own transaction fee and can send transactions. In a way it is good but it has its disadvantages too when you have less space.

By less space I mean the blocks of Bitcoin are only as big as 1 MB which means it can take only those many transactions in total. And on average, a BTC transaction is 230-250 bytes in size which in turn means it can accommodate only 4194 to 4559 transactions in the 1 MB block size.

We all know that miners who are incentivized by the Bitcoin network in the form of block rewards plus the transaction fee are naturally inclined towards maximizing their profits.

They can maximize their profits in two ways:

• By getting more block rewards by finding more blocks
• By including those transactions in a 1 MB block that pays them more fees

Technically, finding more blocks is energy and cost-intensive process which takes time, and thus makes sense in including transactions that pay them more first.

So because of free-market users deciding the fees of the transaction, as well as the limited 1 MB space, finding a place in the blocks has become expensive.

Free market users who can’t wait for longer durations for their transactions to be confirmed naturally attach more fee per bytes to their transactions, thereby pushing the free market average fees higher.

What Is The Current Status Of Bitcoin Fees?

At present, there are more than 5000 transactions pending in the mempool the size of which is increasing every day (at present 113.5 MB) and Bitcoin’s blockchain is validating more than 300,000 transactions per day, the highest in Bitcoin’s history.

Currently, resulting from the massive traffic on the Bitcoin’s blockchain, transaction fees have skyrocketed.

At the time of writing this article, according to bitcoinfees.earn.com, the fastest and cheapest fee was 25 satoshis/byte. Satoshi is the smallest unit of a BTC. You can read about it here more.

People are paying almost $0.5 for a $100 transaction which is a muniscle.

How Does One Calculate The BTC Transaction Fees?

Now comes the million-dollar question: How much fee should one actually pay for a BTC transaction to be successful?

According to bitcoinfees.earn.com this is the recommended fee chart:-

On the left side in the image above is the free-range one can select in satoshi per byte, and on the right hand is the number of expected blocks and waiting time.

Currently, the suggested minimum fees are 21-30 satoshis per byte for which you will get a place in the very next block, the waiting period for which is roughly 10-30 minutes.

Whereas, if you put a fee which is 5% less (something around 18 satoshis per byte), you will get a place in the next 1-3 blocks with an average waiting time of 60-70 minutes.

I would recommend you wait for your transaction to arrive if you are not in a hurry. You can put anything 30-50% less than the highest recommended fee from bitcoinfees.earn.com, which is roughly around 12 satoshis per byte, the waiting time for which is 3-4 hours.

This way your transaction fee can come down to almost 50% i.e. which is still acceptable if you are making a significant transaction. You can learn more about Satoshis and its calculation from our blog post: What is Satoshi? Satoshi To BTC & USD Converters.

Tip: If you are transferring Bitcoin from one of your wallets to another and if you are not in hurry, you can select 1 Satoshi/byte.

Conclusion

I would like to give you some tips for reducing your fee on Bitcoin’s network. Some of them are:

• Use Segwit or Bech32 address wallets that will reduce your fees by around 50%-70%. For now, the wallets those have implemented segwit addresses are Ledger Nano S, Trezor and GreenAddress, etc.
• Use fee recommendation websites like bitcoinfees.earn.com that will give you an insight into the latest fee structure and also the amount you need to pay if you are not in a hurry.
• Try to transact when the load on Bitcoin’s blockchain is less than 10,000 pending transactions. You can always monitor this by tracking the status of mempool unconfirmed transactions.
• Use wallets that allow you to set custom transaction fees instead of a forcefully recommended fee structure. I will share some of the wallets that lets you do that very soon but for now you can use Ledger Nano S and Coinomi wallet because both of them allow custom fees for Bitcoin transactions.

Apart from that, I would like to reiterate the fact that high fees are certainly an issue but this is not unknown to many Bitcoin developers. That’s why there is an unprecedented requirement for implementing segwit addresses everywhere which will certainly provide some relief.

Also, off chain scaling solutions such as Lightning networks are being tested since January 2017 and will hit the mainstream in the near future. Listen to the Lightning’s founder in the video below. It should also give you more insights on its latest developments.

That is all from my side in this article. I will be soon back soon with another interesting article from the cryptosphere that will help you enhance your knowledge.

Now its time to hear from you: How do you select your BTC transaction fees? Are you using any of the above solutions to reduce your fees? Do you have any more suggestions to reduce the BTC transaction fee for your CoinSutra community?

Waiting for your comments.

A few other interesting reads:

Harsh Agrawal is the Crypto exchange and bots expert for CoinSutra. He founded CoinSutra in 2016, and one of the industry’s most regarded professional blogger in the fin-tech space.

An award-winning blogger with a track record of 10+ years. He has a background in both finance and technology and holds professional qualifications in Information technology.

An international speaker and author who loves blockchain and crypto world.

After discovering about decentralized finance and with his background of Information technology, he made his mission to help others learn and get started with it via CoinSutra.

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Explaining bitcoin transaction fees

Every bitcoin transaction must be added to the blockchain, the official public ledger of all bitcoin transactions, in order to be considered successfully completed or valid. The work of validating transactions and adding them to the blockchain is done by miners, powerful computers that make up and connect to the network. Miners spend vast amounts of computing power and energy doing this for a financial reward: with every block (a collection of transactions not exceeding 1 MB in size) added to the blockchain comes a bounty called a block reward (currently 6.25 BTC), as well as all fees sent with the transactions that were included in the block.

For this reason, miners have a financial incentive to prioritize the validation of transactions that include a higher fee. For someone looking to send funds and get a quick confirmation, the appropriate fee to include can vary greatly, depending on a number of factors. While the fee does not depend on the amount you’re sending, it does depend on network conditions at the time and the data size of your transaction.

Because a block on the bitcoin blockchain can only contain up to 1 MB of information, there is a limited number of transactions that can be included in any given block. During times of congestion, when a large number of users are sending funds, there can be more transactions awaiting confirmation than there is space in a block.

When a user decides to send funds and the transaction is broadcast, it initially goes into what is called the memory pool (mempool for short) before being included into a block. It is from this mempool that miners choose which transactions to include, prioritizing the ones with higher fees. If the mempool is full, the fee market may turn into a competition: users will compete to get their transactions into the next block by including higher and higher fees. Eventually, the market will reach a maximum equilibrium fee that users are willing to pay and the miners will work through the entire mempool in order. At this point, once traffic has decreased, the equilibrium fee will go back down.

Again due to the fact that a block on the bitcoin blockchain can contain no more than 1 MB of information, transaction size is an important consideration for miners. Smaller transactions are easier to validate; larger transactions take more work, and take up more space in the block. For this reason, miners prefer to include smaller transactions. A larger transaction will require a larger fee to be included in the next block.

There is no simple way to calculate a transaction size by hand. Your Blockchain.com Wallet will automatically do this for you, and suggest an appropriate fee.

Fees in the Blockchain.com Wallet

Blockchain.com Wallet users will always have options when it comes to bitcoin transaction fees. Our wallet uses dynamic fees , meaning that the wallet will calculate the appropriate fee for your transaction taking into account current network conditions and transaction size.

You can choose between a Priority fee and a Regular fee. The Priority fee is calculated to get your transaction included in a block within the hour. The Regular fee is lower, and is for users who can afford to be a bit more patient; a confirmation for a transaction that includes a Regular fee will typically take a bit more than an hour.

Advanced users can set custom fees for their transaction in units of satoshi per byte (sat/b) by pressing Customize Fee and entering an amount. Please note that setting too low a fee may cause your transaction to remain unconfirmed for a long time and possibly be rejected. Customize your transaction fee at your own risk.

If you want to take a deeper dive into bitcoin transaction fees, this blog post provides a comprehensive overview of what fees are and how they work, and this one elaborates on some frequently asked questions. If you have an unconfirmed transaction, you can learn more about what this means here .

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Transaction commission

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Cryptocurrency Transaction Fees (Transaction Commission) can be included in any transaction in the Bitcoin network [1] .

Contents

Description [ edit ]

Currently a large amount of transactions is processed in a way that commission isn’t necessary. At the same time in case if transaction has a lot of entry points (e.g. it carries large amounts of data) a small commission is not uncommon.

Any miner can be the one who processes the transaction and earns the commission fee. When the network finds a new block it includes all information about transactions including their commission. Thus any user of group of users who find that block will gain both the reward for the block and the commission fees for every transaction included in it.

Including commission in a transaction is a voluntary decision but a user who finds a block can attach any transactions he wants to the said block. That way transactions with 0 commission have the lowest priority when transactions with even the minimal possible commission (

0.0001 BTC at the current moment) have standard priority and will more probably be included in the block [2] .

In the future along with lowering of reward for each block the main source of miners’ income will become commission for transactions. Even when block reward will disappear altogether there will still be point in mining because users will gain commission for all the transactions when they find a block.

Traditionally, the sender pays the full Bitcoin network fee; deducting the fee from the amount received by the recipient will often be considered an incomplete payment, although some wallets have a «sender-pays-fee» feature where the miner fee is deduced from send amount.

Transaction fees are voluntary on the part of the person making the bitcoin transaction, as the person attempting to make a transaction can include any fee or none at all in the transaction. On the other hand, nobody mining new bitcoins necessarily needs to accept the transactions and include them in the new block being created. The transaction fee is therefore an incentive on the part of the bitcoin transactor to make sure that a particular transaction will get included into a block [3] .

Because of deep technical reasons, bitcoin block space is a scarce commodity, getting a transaction mined can be seen as purchasing a portion of it. The price of block space is set by supply and demand, although in the real world the supply of space for transactions is extremely noisy, because more becomes available (and has to be immediately consumed or it’s lost forever) every time a block is mined, and block mined is an intentionally random process, that randomness being essential for bitcoin’s operation. Demand is random and cyclical. Random because each transaction is generated individually so the total amount is noisy (although that averages out to be somewhat smooth at scale) and has both daily and weekly cycles, with more transactions done during the day than at night. Demand can also be affected by speculative movements in the exchange rate. Bram Cohen blog post with helpful background to the market for block space;

Therefore the market for block space asks users to make a tradeoff between confirmation time and cost. Users with high time requirements may pay a higher than average miner fee to be confirmed quickly, while more patent users under less time pressure can save money by being prepared to wait longer.

Reference Implementation [ edit ]

The following sections describe the behavior of the reference implementation as of version 0.12.0. Earlier versions treated fees differently, as do other popular implementations (including possible later versions).

Sending transactions [ edit ]

Transaction with 0 commission can be successfully sent if following conditions are met:

1. Its size is lower than 1000 bytes [4]
2. Its exit points have value of 0.01 BTC or higher
3. Its priority is high enough

In other cases the transaction will be rounded down to 1000 bytes and the commission of 0.0001 BTC will be added. For every following 1000 bytes in that transaction another 0.0001 BTC of commission will be added.

Thus for a transaction of 750 bytes the commission will be 0.0001 BTC and for a transaction of 1001 bytes it will be 0.0002 BTC. Standard Bitcoin wallets always ask their users for approval of commission and if user declines it the transaction can be cancelled. At the current moment an average transaction amounts to roughly 500 bytes which corresponds to a commission of 0.0001 BTC.

Users can decide to pay a predefined fee rate by setting `-paytxfee= ;`(or `settxfee ` rpc during runtime). A value of `n=0` signals Bitcoin Core to use floating fees. By default, Bitcoin Core will use floating fees.

Based on past transaction data, floating fees approximate the fees required to get into the `m`th block from now. This is configurable with `-txconfirmtarget= ` (default: `2`).

Sometimes, it is not possible to give good estimates, or an estimate at all. Therefore, a fallback value can be set with `-fallbackfee= ;` (default: `0.0002` BTC/kB).

At all times, Bitcoin Core will cap fees at `-maxtxfee= ;` (default: 0.10) BTC.

Furthermore, Bitcoin Core will never create transactions smaller than the current minimum relay fee.

Finally, a user can set the minimum fee rate for all transactions, which defaults to 1000 satoshis per kB.

Note that a typical transaction is 500 bytes.

Inclusion in blocks [ edit ]

In this part of the article the current principle of inclusion of transactions into blocks will be discussed. This setting is flexible for every miner if they want to have blocks of lower or higher size that include lower or higher amount of transactions accordingly.

30 000 bytes are reserved for highest priority transactions and they don’t depend on commission in any way. After that all transactions with lower than highest priority are added to the block. The higher the commission the higher the priority. A block’s maximum size is 300 000 bytes. Transactions that weren’t included in their blocks will remain in miners’ memory storage and can be included in next blocks.

Then transactions that pay a fee of at least 0.00001 BTC/kb are added to the block, highest-fee-per-kilobyte transactions first, until the block is not more than 750,000 bytes big.

The remaining transactions remain in the miner’s «memory pool», and may be included in later blocks if their priority or fee is large enough.

For Bitcoin Core 0.12.0 zero bytes relay-and-mining-priority-transactions in the block are set aside for the highest priority transactions. Transactions are added highest-priority-first to this section of the block.

Transaction relaying [ edit ]

The reference implementation’s rules for relaying transactions across the peer-to-peer network are very similar to the rules for sending transactions, as a value of 0.00001 BTC is used to determine whether or not a transaction is considered «Free». However, the rule that all outputs must be 0.01 BTC or larger does not apply. To prevent «penny-flooding» denial-of-service attacks on the network, the reference implementation caps the number of free transactions it will relay to other nodes to (by default) 15 thousand bytes per minute.

Transaction settings [ edit ]

Settings	Default value (unit)
paytxfee	0.0000 (BTC)
limitfreerelay	15 (thousand bytes per minute)
mintxfee	0.0001 (BTC)
blockmaxsize	300000 (bytes)
blockminsize	0 (bytes)
blockprioritysize	30000 (bytes)

Technical details [ edit ]

Transaction priority is calculated as following:

In order to avoid limitation the transaction’s priority has to be no less than 57,600,000. Limit is written in code as COIN * 144 / 250 which implies that transaction has a «coin» with the age of one day (144 is estimated number of blocks mined per day) and the size of transaction is 250 bytes.

Let’s provide an example of a transaction that has 2 entry points one of which is 5 BTC with 10 approvals and the other one is 2 BTC with 2 approvals. Transaction’s size is 500 bytes and thus its priority is equal to

(500000000 * 10 + 200000000 * 3) / 500 = 11,200,000

Fee Plotting Sites [ edit ]

As of May 2016, the following sites seem to plot the required fee, in satoshi per (kilo)byte, required to get a transaction mined in a certain number of blocks. Note that all these algorithms work in terms of probabilities.

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