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 in the first place. 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.
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 an energy and cost-intensive process which takes time, and thus makes sense in including transactions that pay them more first.
So as a result 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.
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 satoshi 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 to 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.
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.
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