Jul 272017

This is a sponsored post

Normally when you hear about transaction fees, you associate them with a large national bank or banking conglomerate that attaches arbitrary fees to transactions for no real discernable reason. Bitcoin is not centralized to any one government, therefore it skates by without transactions fees being applied by the merchants and business that allow cryptocurrency transactions, such as online retail sites, travel agencies and gambling sites that accept Ethereum and bitcoin. These e-commerce markets trade goods and services for crypto and charge no fees in the transaction. The only fees that are common with Bitcoin and other digital currencies are a result of how the currency is mined and recorded into the blockchain.

First, I need to explain a little bit about how bitcoins are mined for us to really understand where these transaction fees come from. Each bitcoin transaction comes with a transaction fee that is both processed and received by the miner. The miners themselves utilize powerful computers built specifically for mining bitcoin. These computers are what makes up the network. They make the decisions on what transactions to add into the blockchain and in what order they will be included. They make those decisions based on several factors and one of the most significant ones is how big the mining fee is.

The miners themselves go through the effort of mining bitcoin because it promises financial reward. Every time a new block of transactions is recorded and included into the blockchain, the miner that was responsible for it collects a bounty in the form of new bitcoins. This is how each bitcoin is created. The miners then keep the fees and are incentivized to comprise their blocks with transactions that have higher fees. You can see the fees that have been paid out by the difference in the inputs and outputs of your transaction details. The larger the transaction, the larger the fee that should be associated with it.

Typically, it’s the sender who pays the fee and they can choose to pay as little or as much as they would like.  The bitcoin miners never have to accept and mine a transaction just because it is out there so the fees turn into a way to incentivize the miners to include these transactions into their block. This then turns into a decision for the miner that’s made based off of the time it would take to mine the block and the amount a miner would receive in fees for doing so. Larger transactions require more time to mine and are sometimes not worth the work if they have less than the recommended fees associated with them. Some people may pay a higher than average transaction fee in order to see their transactions on the block in a shorter amount of time.

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