How do bitcoin transaction fees work?
Despite being a free and open payment system, bitcoin is far from free. In fact, the fees encourage the decentralization and security of the network, as they make mining a profitable activity. In practice, whenever bitcoins are sent from one wallet to another, a fee is tied to the shipment and collected by the miner who checks and confirms the transfer.
Why is it expensive to trade with Bitcoin?
At times, especially when the price of cryptocurrency is rising significantly, it is common to see reports of people who have spent more than R$ 100 in fees. The answer to this is supply and demand in an open market.
The bitcoin network is formed by a chain of blocks that have a limited set of transactions each. People who mine the blocks can choose any transactions they want for the block they create. And to maximize their earnings, they tend to first confirm transactions with higher rates.
You can think of transactions as orders you need to send by the Post Office, which charges by weight. Similarly, from a miner’s perspective, they don’t care about the value sent, only the size in bytes that the transaction has. That way, there is no difference if you move R$1,000 or R$100,000 in bitcoin, the transaction fee will be similar.
How to save as much as possible?
At the Post Office, you can pay a higher fee for a high-priority delivery service or a lower fee for a longer shipment. And so it is also with bitcoin transaction fees. Depending on the urgency of your operation, you can choose to save and expect or pay more to pass in front of other uncommitted transactions.
Most bitcoin wallets already have a rate calculator and have 3 options: fast, normal or slow. But a look at sites like Empoo Space or Bitcoins Live can give you a more accurate notion of how congestion is on the network to know which rate to manually choose and save efficiently.
Already when we are talking about the broker’s cryptocurrency broker’s outing, there is no control on the part of the user, who ends up having to accept the network fee that the broker decides to pay. It is common practice for Exchange to use the higher priority option to avoid a bad user experience.
Bitcoin updates such as SegWit, already activated since August 2017, and Taproot with Schnorr signatures, scheduled for July 2021, help with Bitcoin’s scalability without the need to increase the block limit, relieving the problem of high rates.
Finally, there is the possibility of not paying the main network fees by trading in second-tier solutions such as Lightning Network or sidechains (such as Liquid). They are technologies still in the testing phase, but which bitcoiners use relatively safely for small values.
Without relying on the confirmations of the miners, the bitcoin transactions here are fast and, most of the time, have very small fees, but they occur outside the blockchain and, if the user wants to update their on-chain account, the fees will be paid as in any transaction.