What are transaction fees and why do I need to pay them?

One of the key reasons that miners continuously participate in a blockchain-based network is arguably because of the block reward they receive for validating a block. 

Transaction fees are closely linked to the process of mining. They are necessary because they are part of the rewards miners get for participating in the network.

In the case of Bitcoin transactions, the reward for miners consists of two things: all transaction fees in the block that the miner validated and the additional incentive of a specific block reward of newly minted coins in the process. Currently, in 2021, this block reward is 6.25 bitcoins. Halving of the amount - dividing it by two - takes place every 210,000 blocks. The next “halving” of the Bitcoin network is scheduled to occur in 2024. Miners will then no longer be rewarded for their services with 6.25 but with 3.125 bitcoins.

How does the confirmation of a transaction work?

As you already know, you don’t physically own a cryptocurrency like Bitcoin. Instead, the blockchain records ownership and distributes these ownerships to the whole network. 

Bitcoin transactions can be sent for as little as a couple of US Dollar cents, regardless of the amount you are sending. This is an important detail.

The actual amount of fees you pay depends on the cryptocurrency and the network. For Bitcoin, the median transaction reached 34 US Dollars at the end of 2017 because of network congestion. Thanks to second layer solutions like Segregated Witness (SegWit) or the Lightning Network, transactions can now be sent for as little as a couple of US Dollar cents, regardless of the amount you are sending.

This is an important detail if you use Bitcoin as an alternative to traditional and established remittance services, some of which charge fees of up to 10 percent per transaction.