Oct 252016

who pays for bitcoin transactions

In Bitcoin, who pays for transactions? In every Bitcoin transaction, there are two parties, the sender and the receiver (technically, it is possible to create more complex transactions types but we’ll ignore all that for now, and assume a Bitcoin transaction as a simple financial transaction between the sender and the receiver). There is also Bitcoin transaction fees. So who pays for Bitcoin transactions? The sender pays for Bitcoin transactions. It is important to know this feature, because when you use Bitcoin as a payment mechanism, you should know who bears the transaction fees.

Why does it matter?

Bitcoin was originally hailed as the solution for micropayments. However, in its current form, Bitcoin transaction fees are fairly high for micropayments. Therefore, if you’re trying to send someone a few cents via Bitcoin, you should know that as the sender, you have to pay the Bitcoin transaction fee to the Bitcoin network.

Also, if you don’t provide the proper transaction fees, then your Bitcoin transaction will be ‘stuck’. This means that the Bitcoin network ‘sees’ your transaction, but the network will not confirm this transaction. This is not a good situation to be in, so you should pay adequate recommended fees to the network.

What happens to the transaction fees?

The Bitcoin miners take the transaction fees. This is part of their incentive to verify transactions on the Bitcoin network. The other part is through inflation of monetary supply (i.e. creation of new Bitcoins). Your goal, as the sender of a Bitcoin transaction, is to incentivize miners to include your transaction in a block, which ultimately gets added to the Bitcoin blockchain.

In the future, when the rate of new Bitcoins being created keeps decreasing, miners will increasingly rely on these transaction fees.

How much do Bitcoin transactions cost?

This really depends on the current state of the network, and how soon you want your transaction to be confirmed. To confuse people further, the amount depends on the size of the Bitcoin transaction which can vary a lot. Therefore, it is recommended to use the Bitcoin wallet recommended fees, which is calculated dynamically.

If you want more information on how much your Bitcoin transaction might cost, check out the latest data from 21. Note that a satoshi is a hundred millionth of a Bitcoin (1/100,000,000 of a Bitcoin).

Who determines Bitcoin transaction cost?

There is no central authority that determines Bitcoin transaction costs. This depends on the current state of the network and how full the blocks are. If the blocks are near full, the fees will be higher. If the blocks have more space capacity, the fees will be lower.

So always remember to add an appropriate fee to your Bitcoin transactions.

Photo Credit: Richard Walker

  One Response to “In Bitcoin, Who Pays for Transactions?”

  1. If freelancers accept Bitcoin, they should be aware of the same issue. The person sending you the money will need to pay for the transaction. This is as opposed to other solutions like PayPal where if I send a freelancer $100, they will receive something like $96 or so, but still, I don’t pay the fees for that. Although Bitcoin fees is lower, for smaller projects it can be something to consider.

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