Bitcoin Mining Fees
Bitcoin Mining Fees
Bitcoin mining fees are incurred every time Bitcoins are sent between wallets. With an exchange like iceCUBEDX people seem to understand intuitively that, because the business needs to earn money to operate, it must charge a fee. But because bitcoin is decentralised p2p network, with no one in control, why is there a fee to send coins over the network? Also, who is getting this fee and how is it calculated exactly?
Even on a p2p network, transactions need to be processed. This requires computing power, which costs money. In the case of bitcoin, transactions are being processed by miners. These miners are verifying transactions, at a huge cost in terms of resources like electricity. So, as compensation they will earn bitcoins. You can find a more detailed explanation of Bitcoin mining here.
Bitcoin Mining Fees Calculation
Now we know who gets the fee, we should learn how that fee is calculated. Bitcoin fees work differently to fees using most conventional payment methods, like credit cards. In the case of credit cards, fees are calculated as a flat percentage, or some percentage of the monetary value.
With Bitcoin, the fee is calculated according to the transaction size in terms of bytes of data. Charging by the size of bytes, completely separate from any monetary value attached to the unit of account itself is very new. It is a function of the way bitcoin works. In that, the Bitcoin system has know way of knowing its ‘real world’ value. It just knows how much data the network must process and works fees accordingly.
Miners, guided by the incentive for profit, will include transactions with the highest fees first. Most modern Bitcoin wallets, like Airbitz, handle the fee calculation for you.
However, if you need a guide for what fee to attach to a transaction, a prediction service like this will give you a good estimate. It will accurately inform you what fee will result in what confirmation time, given the current state of the Bitcoin network.