There are lots of wallets out there that people can use to store and spend money. Sure, people are probably thinking about physical wallets right now; however, this also includes virtual wallets. Those who use virtual wallets often have to pay transaction fees to use them. There are many people who simply do not even notice these fees; however, they can add up from time to time.
Bitcoin uses transaction fees as well. While people might not notice Bitcoin transaction fees at first, they really matter for miners because this is how they make their money. Therefore, many people are wondering how Bitcoin transaction fees are calculated, how they impact miners, why they exist, and how they might change moving forward. There are a few important points that everyone should keep in mind when it comes to Bitcoin transaction fees.
The Basics of Bitcoin Transaction Fees
The beginning of any discussion regarding Bitcoin transaction fees has to focus on a few simple principles that play a major role in how Bitcoin works. The two principles that play major roles when it comes to Bitcoin transaction fees include:
- How new coins are created in the worlds of Bitcoin and Bitcoin Mining
- The public ledger of Bitcoin, Bitcoin transaction fees, and how new blocks are verified as a part of the blockchain
Now, for those who might not know, the miners are responsible for handling the principles above. Basically, the miners are responsible for taking computer power, making new blocks with it, and they get paid using Bitcoin transaction fees. In order for Bitcoin miners to make new coins which can be introduced into the money supply, the miners have to put in the work, using computers that solve complex math problems that get rewarded with a new block. Then, when this new block is verified by the other blocks in the system, Bitcoin transaction fees are awarded and the miners are happy.
At the same time, the miners are putting in work. They spend money to purchase the hardware to get Bitcoin miners and then they use electricity to complete these problems. If they were not given Bitcoin transaction fees in compensation for their work, there would be no miners and there would be no new blocks. They would abandon their efforts to mine Bitcoin and the whole world of Bitcoin mining would grind to a halt. This is why Bitcoin transaction fees matter. This is a fee that is given to the miners in exchange for their time, power, money, and energy. This incentive plays a critical role in keeping the miners working hard, allowing them to generate new blocks that are then rewarded with a nice set of Bitcoin transaction fees.
Fees Are Not Required
The Bitcoin transaction fees are paid by people called senders. Now, miners are able to choose which transaction they process first. There are several options from which to choose and many miners work as a part of a large pool. The pool of miners works together to decide which blocks they work on. Therefore, the usual trend is that the higher the Bitcoin transaction fees are for a given transaction, those transactions are going to be worked on first. In this sense, senders are not required to post a fee for every transaction; however, that transaction is going to sit there for a while if there is no available space in the next Bitcoin block. The higher the Bitcoin transaction fees are, the greater the chance of that transaction added to the next block. In this manner, the miners are looking for ways to maximize their income based on Bitcoin transaction fees. Bitcoin is based on the concept of scarcity.
The Calculation of Bitcoin Transaction Fees
There are lots of people who are out there trying to figure out how they can post Bitcoin transaction fees. In the end, this is an exercise of trial and error. There are wallets out there that will do the calculation for people. This calculation is usually based on the amount of traffic at a given time, or the amount of space left in the blocks. If a transaction at a certain fee gets picked up right away, then the Bitcoin transaction fees probably don’t have to go much higher than this given number. If there is a set of Bitcoin transaction fees for a given transaction that sits there for a while, this is probably too low.
A Matter of Luck
Finally, there are some people who are wondering if they should try their luck at trying to set up an optimal set of Bitcoin transaction fees for a given transaction. The average fee is usually calculated in terms of fees per byte by the miners. The reality is that there are websites that already do this work. They keep track of the amount of activity that is on a certain network. These websites are designed to set a benchmark for the size of a given set of Bitcoin transactions as well as the speed at which they are being processed. With this in mind, most people would be better off using the default fee that is offered by the wallet. Try to use lower Bitcoin transaction fees for transactions that aren’t urgent and pay more for work that is urgent. This is the same principle that governs most of the economy. It is the basics of supply and demand.
Bitcoin is changing rapidly; however, Bitcoin transaction fees are sure to continue to play a role. For the world of Bitcoin to survive, the miners need to be incentivized for the work they put in. This is why Bitcoin transaction fees are so essential.