You might not be aware of how the network operates and how Bitcoin transaction fees are implemented. Although the concept may be confusing for people who aren’t in the industry, we’ll cover everything you need to know in this article.
What are these transaction fees?
Since cryptocurrencies are made from blockchain technology, they need decentralized individuals who keep the network up and running. For instance, in the case of Bitcoin, a small fee is usually added to the amount being sent. Although the fees aren’t explicitly demanded, it’s strongly recommended. This is basically true when you need a miner to process your transaction. In a nutshell, Miners are responsible for adding new blocks onto the blockchain and using their computational power to confirm the transaction. When the new blocks are added, the miner is rewarded with the transaction fees within the block and a flat mining reward.
Why are these transaction fees important?
Whenever anyone sends cryptocurrencies such as Bitcoin, there is usually a record of it made somewhere. For regular shops, transactions are recorded by the POS system, banks, or via physical receipts. For cryptocurrency, miners will often clump transactions together. After which, these were added to a publicly accessible record better known as the blockchain. Upon completion of this, the miners will be rewarded with 6.5 Bitcoins. When people started mining for Bitcoin in the early days, the coin reward was 50 Bitcoins. However, as more people get into mining, the reward was halved to accommodate the new entrants into the ecosystem. As such, although the reward has been reduced, the transaction fees obtained from verifying payments can be enough to incentivize to keep people to support the network.
How much are Bitcoin transaction fees?
Cryptocurrency transaction fees have always been very low. At the time of this article’s writing, the mean transaction cost was 0.00086764 BTC, which is about $11.66. Although these fees aren’t as high as those made by banks and other financial institutions, it is still the highest average since June 2018. For instance, banks usually have a fixed transaction fee depending on the sum in question, such as 0.3% of the total fees. Crypto, such as Bitcoin, on the other hand, let users choose how much their transaction fees will be. This is done manually to provide the user with as much control as possible on every transaction being made.