Updated 17 Dec, 2020

BTC Network Fees: The What and Why

Bitcoin scaling has recently become a hot topic within the cryptocurrency community. As BTC grows and more and more users hop on the train, priority shifts to ensuring that the network can efficiently handle the increase in transaction volumes. In this post, we discuss everything you need to know about Network Transaction Fees.



What are Network Fees?

As you may know, BTC is a peer-to-peer transaction. The Bitcoin network fee is a small fee that is charged on each transaction to confirm transactions between 2 parties. The cost of the network fee is set by the market depending on several factors, including the size in kilobytes i.e the amount of data that make up the transaction.


Why Is There a Need for Network Transaction Fees?

At a basic level, Bitcoin uses a blockchain to record all funds and transactions. The Bitcoin blockchain is a decentralized network, meaning that there is no central authority confirming the transactions. These transactions are batched into a block of transactions and confirmed by so-called miners, who ‘mine’ the block and confirm the transaction between one party and another.

For proof of work blockchains such as BTC, miners get block rewards. This means that miners are rewarded when they successfully validate a new block. The work done by miners and validators is essential for maintaining the integrity of the network. So, the Bitcoin network fee goes to the miner who successfully mines the block of transactions.

That is why fees are essential for a network to work smoothly.


How Are They Calculated?

Fees can fluctuate depending on market demand and network capacity. Depending on the number of transactions to be confirmed and the number of miners working at that time, the network fee fluctuates up and down to incentivize more miners to start mining when demand is higher. Therefore, you may find that the network fee is higher than other times.

The amount you pay per transaction is determined by how much you’re willing to spend. So, the higher you are willing to pay you, the higher you will be seen as a higher priority, and the faster the transaction will be processed.