How are Bitcoin transaction fees calculated? How much do Bitcoin transactions cost?

Moreover, due to the bleak market conditions,

the handling fees for Bitcoin transfers have also fallen to the bottom

in recent times. According to data from the Tokenview website, the amount of Bitcoin on-chain transfers dropped sharply on the first day of the new year in 2020, and transaction fees were at the lowest point in nearly 360 days. However, during the great bull market of 2017, Bitcoin transfer fees once reached over $50.

Why is there such a big gap? How is the handling fee for Bitcoin transfers calculated? Today, let’s find out.

01

"There is no free lunch in the world", so many people take it for granted that Bitcoin transfers must require handling fees. Actually, this is a misunderstanding.

In the underlying system of Bitcoin, there are no regulations on handling fees. In other words, the handling fee is not mandatory. In the early days, due to the low price of Bitcoin and the small number of transfers on the chain, many miners did not care whether users paid handling fees (also called miner fees), so many Bitcoin transactions that did not pay handling fees were packaged and confirmed by miners. For example, in the picture below, the block height is 100,000, and there is no handling fee for this Bitcoin transfer.

However, as the price of Bitcoin rises rapidly, the number of transfers on the chain is increasing. In order to maximize their own interests, miners have begun to prioritize the packaging of transactions with handling fees. trade. Now, if the transfer does not pay the handling fee, it will basically not be packaged and confirmed by the miners.

02

If it is a bank transfer, the handling fee will be charged according to the transfer amount. The larger the amount, the higher the handling fee (now banks have also set a handling fee limit). For Bitcoin transfers, the handling fee has nothing to do with the amount. The handling fee can be the same for transferring 1 BTC and transferring 1,000 BTC.

So, what are the factors that affect Bitcoin transfer fees?

With the development of Bitcoin, transactions without fees will basically not be packaged and confirmed by miners, so many Bitcoins The client and wallet have customized fee standards. This causes different Bitcoin clients to have inconsistent transfer fees. Currently, the mainstream fee standard is based on bytes: a fee of 0.0001BTC per kilobyte (transactions less than one kilobyte are calculated as one kilobyte).

The byte size of a Bitcoin transfer has nothing to do with the amount of the transfer, but is related to the number of UTXOs. For example, Zhang San and Li Si transfer 6 BTC to Wang Wu respectively. If Zhang San uses a UTXO with a denomination of 7 BTC, and Li Si uses seven UTXOs with a denomination of 1 BTC, then obviously, Li Si’s This transfer is much larger in bytes. For knowledge about UTXO, please check Baihua’s previous tweet “Without UXTO, Bitcoin may not be able to operate so stably for 10 years.”

#In addition to byte size, congestion on the Bitcoin network will also affect handling fees. If there are many people using the Bitcoin chain to transfer money, causing congestion on the Bitcoin network, and you want your transfer to be confirmed as soon as possible, you will need to pay a higher fee to "jump the queue" and increase the priority of being packaged and confirmed. Of course, if you are not in a hurry, there is no need to increase the transfer fee because of congestion on the Bitcoin network.

Byte size and congestion of the Bitcoin network are the main factors affecting handling fees. In addition to these two major factors, factors such as currency age (also known as currency days) will also affect the handling fee because they will affect the priority of transactions being packaged and confirmed. I will not explain too much here.

03

For ordinary users, it is necessary to accurately calculate how many UTXOs will be used for each Bitcoin transfer, how many bytes there are in total, and what the congestion situation of the Bitcoin network is. , is not very realistic. So, what should we do?

The simplest way is to use the handling fee recommended by the wallet. Nowadays, many Bitcoin wallets are very smart and will recommend appropriate handling fees to you based on network congestion and your transaction byte size. Of course, you can also manually adjust it based on your own needs based on the handling fee recommended by the wallet.

(The handling fee recommended by a certain wallet can be adjusted according to your own needs)

04

The handling fee for Bitcoin transfer is not It is mandatory. In the early days, many on-chain transactions did not have handling fees, but now if you do not pay the handling fees, they will basically not be packaged and confirmed by miners. The main factors that affect the handling fee are the byte size of the transaction and network congestion. If you want your transaction to be packaged and confirmed by miners as soon as possible, you need to pay a higher handling fee to "jump the queue".

For ordinary users, the most convenient thing is to use the fee setting recommended by the wallet. How do you typically set fees when making Bitcoin transfers?

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