TD₿: What the fees? Understanding the Costs of Bitcoin Transactions by Buck Perley
TL;DR If you ever wondered how exactly transaction fees are calculated in Bitcoin, this piece is for you.
Hey Bitcoiners,
Transaction fees are important to consider when thinking about the various tradeoffs between different payment networks such as Bitcoin, Visa, and SWIFT.
Low transaction fees are obviously preferred by users and signify that Bitcoin as a payment network is scaling appropriately. On the flip side, high transaction fees indicate substantial demand for block space, and signal that miners are being handsomely rewarded for securing the blockchain.
Lately, there has been a lot of chatter about how Bitcoin’s transaction fees have been too low. To me, this is a sign that Bitcoin is scaling due to innovations such as SegWit, transaction batching, and the Lightning Network.
But to take a step back, how exactly do transaction fees work in Bitcoin? It’s critical to understand the fundamentals of Bitcoin to recognize potential issues that can arise in the future, and to think through ways Bitcoin can be improved upon as a payment network.
Buck Perley wrote an in-depth overview of how Bitcoin transaction fees work in this blog post (04/09/2021).
During the price run-up of 2017, transaction fees spiked. At the top, fees made up over 40% of miner revenue as Bitcoin became congested and struggled to handle the surge in transaction volume.
Today, we have comparable transaction volume, and transaction fees make up only ~3% of miner revenue.
This is progress — Bitcoin is scaling.
Tick tock next block,
Cory Klippsten
Sign up for Swan and receive $10 in free Bitcoin today.
Quote of the Day
“It is still early on the Bitcoin lightning network, but once businesses realize that they can reduce transaction fees and improve their profits by 2.5- 3.5% by cutting out Visa or Mastercard, what do you think will happen? Just getting started...” - Jeff Booth, Technologist and Author of the Price of Tomorrow
Meme of the Day
