With the daily increase in the adoption of bitcoin and cryptocurrencies in general, it is becoming the more important to equip users with the soft skills required to better understand and navigate this space. Compared to the earlier days of bitcoin, various platforms have developed more beautiful, simpler and easier to use interfaces. A lot of these platforms sort of automatically calculate the transaction fees for users – the curious thing however is how these fees are arrived at.
As is with the order of life, things hardly come for free. It is just fair that everyone within a value chain gets paid for their efforts and services, and the same principle applies with the process of sending or receiving bitcoin – you have got to pay the piper i.e the miners who use their machines secure the network and make confirmations for hundreds of thousands of transactions that are executed daily.
Who Takes the Transaction Fees?
Aside earning rewards for solving complex mathematical calculations for the next block, miners also get rewarded for confirming transactions attached to that block. At the moment, the reward per block stands at 12.5 BTC. This amount could however inch closer to 13 BTC when transaction fees are added. Though there are no stipulated rules set for users to pay fees for transactions, there are also no obligations for miners to add transaction to blocks they are confirming. This therefore creates a situation where a miner will likely prioritize blocks containing transactions with fees as opposed to blocks whose transactions have little or no accompanying fees at all.
As with human nature where the likelihood is to give more attention to what pays the most, miners are also more likely to gravitate towards blocks with higher transaction fees as compared to those giving low rewards. This transaction mechanism has seen users who are in a hurry to get their payment instructions executed pay higher fees. Those who pay higher fees are likely to have their transactions confirmed within the next block, say 5 to 15 minutes whiles lower fee transactions are confirmed within the next 3 blocks or more and this could take up to 30 minutes or even sometimes more.
Simple Calculations for Your Transaction Fees
With the increase in the value of bitcoin, has come the corresponding increase in the cost of transactions executed on the blockchain. It is important to note however that the increase in fees does not necessary have anything to do with the increased value of the cryptocurrency as fees fall and rise independent of this.
If you are to ask the very technical blockchain guy how fees are calculated, you are most likely going to end up all the more confused because he will most likely find the calculation of transaction sizes in bytes and multiplication of median byte sizes (with a division to the 100th million satoshi in mind) a walk in the park without taking into cognizance your little affinity for complex math.
Thankfully as tech advances and more innovation thrives with blockchain enterprises, many wallets already come with in-built fees calculators. But not all wallets are adequately equipped and some do leave customers to calculate their own fees. In such instances, the following simple steps can be applied;
Bitcoinfees.earn.com is a fees prediction tool. You will need to understand bitcoin numbers in satoshis to fully grasp this tool. This tool helps you to convert from satoshis (bitcoin cents) directly into fiat currency (USD, EUR, GBP etc).
Estimatefee.com is a simple website that calculates transaction fees for you. The site calculates your fees depending on how quickly you want to move your coins around.
There are other sites like Bitcoinfees.info who also help you to calculate your fees without the need to have any deep understanding of blockchain mathematics.
It is not exciting to know that there are no simpler ways to determine bitcoin transaction fees due to the workings of bitcoin. Fee price per transaction depends on a number of factors which include but not limited to kilobyte sizes (which represents the amount of data that make up transactions).
Blockchain can be likened to a highway – it gets congested during peak time and thus there can be a corresponding increase in fees during these times especially if you look to make fast transactions.