What is bitcoin transaction fee

Bitcoin transaction

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Bitcoin transaction is a section of data confirmed by a signature of Bitcoin. It is sent to the Bitcoin network and forms blocks. It typically contains references to preceding transactions and associates a certain number of bitcoins with one or several public keys (Bitcoin addresses). It is not encrypted because there is nothing to encrypt in the Bitcoin system. A Blockchain browser is where all transactions are combined in the form of a blockchain. They can be found and verified. This is necessary to determine technical transaction parameters as well as verify the details of payments.

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The general format of all Bitcoin transactions [ edit ]

Field	Description	Size
Version number	Currently 1	4 bytes
In-Counter	Positive integer VI = Varlnt	1-9 bytes
List of inputs	The first input of the first transaction is also called a coinbase	many inputs
Out-counter	Positive integer VI = Varlnt	1-9 bytes
List of outputs	The first output of the first transaction use Bitcoins found for the block	many outputs
Lock time	If not equal to 0 and sequence numbers are inferior to OxFFFFFFFF: block height or timestamp (for final transactions)	4 bytes

View bitcoin transactions with input and output [ edit ]

Data [ edit ]

Interpretation [ edit ]

Input in this transaction imports 50BTC from output # 0 in transactions f5d8…, then the output sends 50 BTC to a Bitcoin address (expressed here in the form of a hexadecimal system – 4043…). When the recipient wants to spend their money, he will reference this transaction’s output # 0 for his own transaction’s input.

Input [ edit ]

Input is a reference to the output of another transaction. A transaction often possesses several inputs. The values of these references are resumed and the total value of bitcoins can be used for the current transaction output. Previous tx is the hash of a preceding transaction. Index is a certain output from this transaction. ScriptSig is the first half of the script (see below for more details about this).

The script is composed of two elements: the signature and the public key. The public key belongs to the user who applies the transaction outputs and confirms that the creator of the transaction has the right to have at his disposal the sum of money obtained from the outputs. Another element is EDCSA (hash signature of a simplified version of the transaction). In combination with the public key, this signature confirms that the transaction has been created by the real owner of this Bitcoin address.

Output [ edit ]

The output contains instructions about sending the bitcoins. The value is an amount in satoshi (1 BTC = 100000000 satoshi), which can be used by the transaction for which the current transaction is the input. ScriptPubKey is the second half of the script (this will be elaborated upon afterwards). There can be more than one output and these will share the amount sent from the inputs. Each transaction output may only be used as the input for the subsequent transaction once, with the effect that the sum of all current transaction inputs must be used in the output. Otherwise the remaining sum from the transaction inputs will be lost. For example, if the input is equal to 50BTC and the user must only send 25BTC, Bitcoin creates two outputs of 25BTC each: one will go to the destination, the other will go to the owner of the funds again (the so-called ‘change’ – a transaction in which the user in fact sends money to himself). Any amount remaining from the input of bitcoins not used in the transaction will become the fee for the transaction. The person generating the block will receive this fee.

Transaction verification [ edit ]

In order to verify if the inputs are permitted to collect the requisite sums from the outputs of the preceding transactions, Bitcoin uses the standard system of the script (see below) of scriptSig input and scriptPubKey output which this transaction references. They are evaluated with the help of scriptPubKey using the remaining values in the scriptSig stack.

The input is confirmed if the scriptPubKey script returns a “true” value. Using the script system, the sender can create very complex conditions to fulfill by those who wish to obtain the output value. For example, it is possible to create an input which any user will obtain without authorization. It is equally possible to request that the input be signed by 10 different keys or verified by password.

General format of each transaction input – Txin [ edit ]

Field	Description	Size
Hash of preceding transaction	Hashed double SHA256 of preceding transaction	32 bytes
Previous Txout-index	Arithmetical integer. It indexes outputs of the preceding transaction	4 bytes
List of inputs	The first input of the first transaction is also called a coinbase	many inputs
Length of Txin script	Arithmetical integer VI = Varlnt	1-9 bytes
Txin-script / scriptSig	Script	many bytes
Sequence number	Normally 0[FFFFFFFF; functions in the case that the lock time of the transaction > 0	4 bytes

The input adequately describes where and how the number of bitcoins can be obtained which can be redeemed by their new owner. If it is the only input of the first transaction in the block, it is called the generated transaction input. Its contents are completely ignored.

General format of each transaction output – Txout [ edit ]

Field	Description	Size
Value	Arithmetical integer giving a satoshi amount (BTE/10^8) necessary for transactions	8 bytes
Length of Txout-script	Arithmetical stack	1-9 bytes
Txout-script / scriptPubKey	Script	many bytes

The output determines the conditions of use of the Bitcoin data in the following transactions, the sum of the output values of the first transaction in the block is a value of bitcoins taken for the block. Here a fee amount is added from the other transactions added to this block.

Transaction confirmation [ edit ]

A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. How does Bitcoin work? Bitcoin transactions are not immediate. When a user wishes to send bitcoins, information is broadcast from her wallet to the (users in the) network, who verify that she has enough coins, and that they have never been spent before. Once validated, miners will include this transaction – along with others – in a new block in the blockchain. This is called a transaction confirmation. The transaction is now said to be «0/unconfirmed»

Each time a new block is added to the chain (every ten minutes), the transaction is said to be confirmed again. As a consensus, many users wait for a transaction to be confirmed six times (after roughly sixty minutes) before accepting it as payment, to avoid double-spending. Users will usually show a transaction as «n/unconfirmed» until it is six blocks deep.

Current bitcoin transaction fee [ 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.

Where do bitcoin transaction fees go? [ edit ]

Cost of Bitcoin transaction [ edit ]

Transaction fees (cost of Bitcoin transaction) are included with your bitcoin transaction in order to have your transaction processed by a miner and confirmed by the Bitcoin network. The space available for transactions in a block is currently artificially limited to 1 MB in the Bitcoin network. This means that to get your transaction processed quickly you will have to outbid other users.

Bitcoin transaction price shown at the historic charts and tables are in US dollars per transaction and in satoshis per byte [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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