BTC Geek

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

Princeton University is taking the lead on American Universities teaching students about Bitcoin. Their professors have already taught an online course in this space, and have now provided everyone with a free copy of their book. The best thing is, the lead is coming from their computer science department, and therefore their treatment of the subject is as it should be – teaching students about a new technology. The treatment of the subject in the course and in the book is definitely technical in nature, and provides a great overview of Bitcoin and cryptocurrencies from a technical perspective.

This, combined with Andreas’ book Mastering Bitcoin should give anyone enough knowledge to start working on Bitcoin and cryptocurrencies. Remember though that the book and course don’t cover things like how to integrate Bitcoin into your web application or other web-development topics, or even building on top of Bitcoin. The material is more towards you being able to create your own such system, or contributing to Bitcoin. If you’re ever wanted to contribute to Bitcoin Core (or Bitcoin Classic for that matter), then these two resources are all you will need to get started.

Also check out the Learn About Bitcoin section to get more resources that can help you on your journey to learn about Bitcoin and contribute to its dynamic ecosystem.

Today, Gem, a Bitcoin API provider, raised $7.1m in its Series A round bringing the total money it raised to $10.4m. That’s a significant chunk of money for the California-based startup and a nice piece of news in 2016 for the Bitcoin economy. After all, another Bitcoin API company, Chain, raised a total of $43.3m and completed its series B raising $30m.

Also, it is not as if there is a shortage of Bitcoin APIs in the market – BitPay for example has several open sourced APIs into the Bitcoin network such as BitCore for getting data and statistics from the Bitcoin blockchain and Copay as a Bitcoin wallet. There are other options for developers too, such as BlockCypher to get data from the Bitcoin blockchain.

So why are Bitcoin APIs hot with investors again, pouring in scores of millions of dollars into these companies? The answer is, they are not – these companies are all pivoting into something more than just an API.

APIs Make Sense for Developers

From a developer perspective, Bitcoin APIs make a lot of sense. If you’re building an application that needs to look up the Bitcoins stored in a wallet, you can either do that through a one-line call to an API or download the entire Bitcoin blockchain, write your own parser and hope you’ve not made an error. Then, you need to keep the blockchain updated, so you’ll have to run a node.

Instead, these Bitcoin API services do all the hard work for you (presumably) and protect you from attacks, stale data, etc. so that instead of every small developer trying to reinvent how to get data off of the Bitcoin blockchain, they can instead just focus on building their application instead.

However, APIs are not too Profitable

Merely providing an API cannot be very profitable for the companies and won’t justify a $100m valuation. After all, companies in the Bitcoin space can provide these APIs with relatively low upkeep and therefore the business is fairly commoditized. It is hard to get revenue off of a product when a better capitalized rival is offering the same service for free.

The Pivots

Chain, which was one of the first Bitcoin API providers and one of the best funded startup in the Bitcoin space actually killed its original product of providing an (free) API to the Bitcoin blockchain for developers. It’s a shame, since they courted developers quite actively through conferences and other ways. Chain is now pivoting into ‘digital assets’ i.e. helping companies like NASDAQ track the shares that they issue on their private markets on the blockchain. Gem itself is looking to expand into the ‘blockchain economy’.

Blockchain Buzz

Note what’s common in all these – the blockchain. That’s where the next wave of investor interest is going into, and it is not necessarily going to be the Bitcoin blockchain, although many products that are actually live today use the Bitcoin blockchain for asset tracking using some kind of a colored-coin protocol. However, the language the companies are using is deliberate – read the Gem blog post if you want proof – “The excitement around blockchain technology is high”, “…great potential for new distributed ledgers…”, “…emergence of the blockchain economy…” etc.

It will be interesting to see how this progresses in the future. Venture capitalists are funding companies that provides the rails for developers to use. Presumably, behind the scenes, what happens is abstracted away from the developers, so it’s easy to switch to Bitcoin or another blockchain like Ethereum or a completely private blockchain like the banks are experimenting with. It’s something to take note of when Bitcoin API companies are expanding into ‘blockchain’.

Photo Credit: clappstar