Transaction Fees

Published by Mario Oettler on

For every transaction, a fee is charged from the sender of the transaction. The fee goes to the miner, which includes this transaction in its block.

Fees have two purposes:

  1. Payment for the miners (those nodes which take care of the network): You will learn a bit more about the incentive scheme of miners later on.
  2. Anti-spam measure: If transactions would be for free, there could be users who create billions of non-sense transactions, which would spam the network and bloat the blockchain. But with fees, such behavior would become pretty expensive after a while.

Bitcoin users are free to choose the amount they want to pay a fee. And miners are free to choose which transaction they want to include in their blocks. So, a miner would prefer those transactions which are most profitable. If a user decides to pay a high fee, miners earn more from this transaction and they would be willing to include this transaction quickly in their block. This is particularly important since each block has a maximum capacity of transactions (called maximum block size). If someone wants to pay a low fee, miners are more reluctant to include this transaction because they would prefer transactions with higher fees. Hence they would include this transaction only if there is enough space in the blocks, which can take a while.

Fees apply only if a transaction is made. Keeping a coin on an address and not moving it around is free.

Calculating the optimal fee is usually done by the applications automatically, which are used by users.