What Is A Cryptocurrency Transaction Fee

The cryptocurrency transaction fee (also known as a blockchain commission, blockchain fee, or network fee) is a fee one pays for transferring cryptocurrency to the particular address by miners. Blockchain is a chain of blocks controlled by miners. Each block consists of a certain number of transactions. Confirmation is a specific number of blocks that are added to the blockchain after the block with information about your transaction. In other words, in order for the cryptocurrency transfer process to complete successfully, it is necessary to confirm this process in the blockchain.

Do you know how to transfer cryptocurrency faster? A huge number of people make crypto transactions every day. If you want to speed up the transfer of payments on the blockchain, then you need to pay a fee for the transfer. In this case, miners include your payment in the most “profitable” ones (the higher the commission, the higher the priority of adding a transaction to the blockchain).

The blockchain fee is debited from the user's account in excess of the transfer. For example, if a user wants to transfer 0.1 BTC and is charged a network fee of 0.0004 BTC, then 0.1004 BTC will be deducted from the user's account.

The amount of the network fee is indicated by the user at the stage of all the transaction parameters settings - the amount of transfer, etc. In the fee field a person can put “a zero value” or “arbitrary” - the amount that he/she is willing to pay.

There are “recommended” commissions (fees) which exist for users who don’t know how the blockchain fee is calculated. The recommended commission is the commission which provides a high probability that the transaction will be included in the next blocks.Recommended blockchain commissions are set by special services or wallets. The recommended cryptocurrency transaction fees are indicated in the fee field so one can notice it when filling out the transaction parameters in crypto wallets. Moreover, in some wallets, this value can be changed, shifted to the lowest one, but in some wallets it is impossible.

How is the cryptocurrency transaction fee calculated?

All sent cryptocurrency transactions are added to the mempool (mempool is a cloud of all transactions that haven’t entered the block yet). Information about the blockchain is publicly available, that is, you can analyze the latest transactions that have been added to the block. You can see the amount of the network fee and how quickly the transaction was added to the block. Analyzing the latest transactions you can predict the minimum blockchain fee which will allow your transaction to be added to the block. This is a way to find out the amount of the commission manually.You can also use the recommendations of wallets or other resources. They process this information automatically, but may inflate the amount of the on was added to the block. Analyzing the latest transactions you can try to predict the minimum blockchain commission in order to protect yourself from frozen transactions.

As it was mentioned before, sometimes the crypto wallet software that is used by a person may offer the recommended fee - but everyone can do their own research on the lowest crypto transaction fees and doesn’t have to accept these recommendations. There are some resources that help to track average fees that are paid for transactions of various sizes (in bytes). Checking this information people can save their money.

Why has the cryptocurrency transaction fee increased?

Every person would like to pay the lowest fee, but the more popular cryptocurrencies, the higher their transaction fees. This is due to an increase in the network load. For example, Bitcoin block size is limited to 1 MB that limits the number of transactions. One block is produced approximately every 10 minutes, this is a special network restriction that ensures the stability of the blockchain. The more transactions, the more fees increase. This is because miners primarily select transactions with the highest rewards. Therefore, users are forced to pay higher transaction processing fees.

How to avoid paying extra blockchain transaction fees?

Let’s see how to avoid paying extra fees in the Bitcoin network. To do so, you should remember some important moments:

1. The amount of blockchain transaction fee is not fixed. There may be different commission rates at different times of the day. The resources which check commissions don't always keep an eye on this variability and show non-actual “recommended” fees sometimes.
2. Do not make transactions during the blockchain overload. During this period, users inflate blockchain commissions to speed up the cryptocurrency transfer process. You can make a transaction later, during a period of low network load and pay a lower commission.
3. Use SegWit (Separated Witness) wallets. SegWit is an update to the Bitcoin protocol to streamline transaction data and reduce file size. Segwit was activated on the Bitcoin network on August 24, 2017. It appeared as a software fork compatible with previous Bitcoin transactions. Here are the wallets that support SegWit: Ledger X, Trezor Model T, Electrum, GreenAddress Wallet, and many others.
4. Group inputs. The amount of the blockchain commission depends on the size of the input data. You can combine small transactions and send them during a period of low network load, so that the commission is lower. In this case, for the next payment, you will have only one record, and the cryptocurrency transaction will be cheaper.

Different crypto services may inflate commissions, set limits, block the possibility of lowering and changing commissions, etc. You can set the amount of the Bitcoin transaction fee on your own, which may allow you to transfer BTC coins without any delay.

Also, choose a crypto wallet carefully. Good wallets allow users to change recommended blockchain transaction fees at their discretion. However, you should remember that transactions with a small commission can take a very long time in the BTC network.

Just like some services provide you with the standard Bitcoin price or compare crypto exchange withdrawal fees, some websites may help you to make the Bitcoin transaction fee calculation. There is one of these sites which promises to predict Bitcoin fees for transactions: https://bitcoinfees.earn.com. You can also check any similar resources.

We described the basic principles of the fee calculation using Bitcoin as an example. There may be different ways to calculate the fee for other cryptocurrency transactions, be careful, don’t pay high commissions and save your money!

We hope that this article was helpful for you. See you soon!