Bitcoin Transaction Fee: Overview
Bitcoin transaction fees are a certain amount of money that you pay when you transfer Bitcoin on the blockchain. It is also referred to as mining or network fees, as miners are incentivized with the fee along with block subsidy to process block transactions and keep the network flowing and safe. Also, it increases with the size of transactions carried out, as more significant transactions take up more extensive data in a block.
Furthermore, the Bitcoin transaction fee determines the transaction processing speed when the network is crowded with many transactions. During this process, miners prioritize adding transactions with more enormous processing fees to the blockchain ledger for confirmation.
Who pays the Bitcoin transaction fees?
Traders are the ones who pay Bitcoin transaction fees for their transactions to be processed. They pay the fees to compensate miners, who are using their resources, such as electricity and computing power, to process blockchain transactions and carry out other activities. The fee is usually added to the amount deducted from the sender's transaction.
How much does Bitcoin charge per transaction?
The average price for a Bitcoin transaction fee is $2.254. The cost is constantly changing, varying per hour and minute. Over the years, the price has risen, and about a 72.48% rise was observed from last year's average Bitcoin mining fee ($1.328). Also, in April 2021, the price rose to almost $70 due to a significant decrease in the Bitcoin network hash rate, and in 2017, the price rose to about $60 due to network congestion.
Users can decide on the network fee type to pay, depending on how quickly they want their transactions processed. The amount to pay for the fee is classified into three, low priority (Eco), medium priority (Fast), and high priority (Fastest). The mining fee can range from a few cents for a low-priority Bitcoin transaction fee to several tens of dollars or even a hundred for a high-priority Bitcoin network fee.
Why are Bitcoin transaction fees so high?
Several reasons are causing an increase in Bitcoin transaction fees. Here are some of the reasons:
• Block size: Bitcoin block sizes range from 1 MB to 1.5 MB, enough to store over 2000 transactions. Due to the limited space in a block, miners tend to process some transactions faster based on the mining fee the users are willing to pay. Other low-priority transactions are delayed for several hours or days to attend to the high-priority ones.
• Network Congestion: Every blockchain network has its specific TPS (transaction per second) rate. TPS is the number of transactions a node can process per second. At times, the transactions to be processed can exceed the network capacity. Due to this, a general slowdown of transaction processing coincides with increased transaction fees, making miners prioritize some transactions based on the user's network fee.
• Bitcoin Bull Run: This is when the number of transactions to be processed exceeds the number of available miners. This makes traders pay higher fees proposed by miners for transaction processing.
How to calculate Bitcoin transaction fees?
Bitcoin transaction fees can be calculated by multiplying your transaction size by the network fee rate suggested by the calculator. The mining fee rate is usually measured in sats/bytes. Sats/byte is the Satoshis per unit of data your transaction is to consume on the blockchain network. Additionally, 1 Satoshi is the smallest bitcoin unit equivalent to 0.00000001 (10e-8) BTC.
Using a fee estimator on Bitcoin or other third-party websites like ours is best to calculate your estimated network fee in seconds. Here are more details on the parameters you need to calculate your Bitcoin transaction fee on calculators found on websites:
Transaction size: To calculate your transaction size, you must know your address type: Legacy or Segwit. Secondly, you need to know your input and output numbers because your transaction size depends on these parameters to be calculated in bytes.
Estimate fee rate: Your fee rate depends on how urgent you want your transaction processed. For example, selecting less than an hour increases your estimated fee rate, and selecting more than an hour reduces your fee rate. You can also add to the suggested fee to make your transaction faster.