Beginner
Lesson 9
4 min

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

You already learned that the Bitcoin network is able to verify transactions without a single authority because of miners who allocate their computing power to the network.

  • Fees are necessary in order to get a transaction included in the next block 

  • The actual fee you have to pay varies and depends on the network

  • Bitcoin transaction fees are fixed at a couple of cents, regardless of the amount you send 

In this article, you will learn the basics of transaction fees.

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.

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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.

 

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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.

Bitcoin Block Reward History 

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.

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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. 

DISCLAIMER

This article does not constitute investment advice, nor is it an offer or invitation to purchase any crypto assets.

This article is for general purposes of information only and no representation or warranty, either expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this article or opinions contained herein. 

Some statements contained in this article may be of future expectations that are based on our current views and assumptions and involve uncertainties that could cause actual results, performance or events which differ from those statements. 

None of the Bitpanda GmbH nor any of its affiliates, advisors or representatives shall have any liability whatsoever arising in connection with this article. 

Please note that an investment in crypto assets carries risks in addition to the opportunities described above.