Why are there bitcoin fees? And how much do you pay so it may transact faster?
This are some of the questions that will be explained here in this article.
Bitcoin fees are payments for bitcoin miners for processing a transaction.
Understanding how bitcoin transaction works
When you are transferring a fund to another bitcoin address, the first step is transaction verification. It means the transaction is checked in the network by all the computer that holds the bitcoin blockchain for validity. After validation, the transaction goes to the mempool. It serves as a waiting room for unconfirmed transaction. When miners pick it up to be packed and successfully included it in a mined block, the transaction becomes a confirmed transaction and the transferring of funds is complete.
Take note of this, a block has a limited size so it can hold a small amount of transactions. Miners prioritize this transactions according to the fees attached to it.
Fees are a way of telling the miners how urgent your transaction is. So if you want your transaction to be faster, you can attach a higher fee.
Calculating fees is complicated! Every transaction has a size. Since miners wants to maximize their profit, they prioritize transaction with a larger fee to a text size-fee ratio often called as feerate.
A transaction size depends on different factors.
Number of inputs - the more inputs you transacts the bigger the text size. When you acquired 1 btc to a different sources and transferred the whole btc, it will include all the inputs on how you acquired that 1 btc.
Number of outputs - this are the numbers of addresses your paying to. (I'm gonna explain this on other article 😁)
Script complexity - some transaction requires special features that increase the text size
I know it is hard to compute this by your own but no worries, your bitcoin address will be the one to compute this for you based on average fee rate.
For all you knew, reducing fee is very comfortable for the eyes. Lower fee means less money will be lost. Here are somr tips to reduce fee:
Avoiding rush hour - when bitcoin network is congested with transactions it is for sure feerate is high
Use wallet that has segwit - a program that reduced your transaction into smaller files
Input grouping - consolidating all inputs makes lower fee transactions
Output grouping - if your wallet support this, your in luck. This groups all payments into one transaction that will reduce fees
Wallets suggest a reasonable fee based on the current fee rate and activity in the bitcoin network.
Some wallets makes you configure the setting into slow, average and fast fee rate. It will depends into you if you want your transactions to be slower and faster.
Fee is to low - remember miners prioritize transactions with higher fees and depends in the congestion of the bitcoin network
Sending unconfirmed funds
Here are tips when you encounter stuck transactions
Wait - if your transactions is not that urgent just wait it out.
RBF - rebroadcasting your transaction in the bitcoin network with higher fees
Transaction accelerators - you can request mining pools to do your transactions. (Feels like bribery 😅)
Bitcoin fees all depends in the miners and how busy the bitcoin network is.
The more you want the transaction to be faster, the more you need to pay.
"There's no art where there's no fee" - Aristophanes