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Tuesday, December 5, 2023

Why do we pay fees on Bitcoin (BTC) and Ethereum (ETH)?

Do you often (or regularly) carry out transactions using bitcoin (BTC) or other cryptocurrencies? You have surely noticed that these transactions induce the payment of certain fees. However, don’t we say that the blockchain is not controlled by any company or institution? But then, why do cryptocurrency users have to pay fees when making transactions? 

Transaction fees for the benefit of minors 

When transactions are made on the blockchain, they are issued by network users. Then they are assembled into blocks which will be confirmed by miners . In this way, we obtain a blockchain which groups together all the transactions carried out. 

For the blockchain to be valid, miners must be rewarded for their involvement in the activity. Indeed, it is thanks to their intervention that BTC and other digital assets have a secure economic system. 

The fees that blockchain users pay when they complete a transaction are used to trick miners into verifying the transaction block. Once the verification is done, the transaction is added to the block after being committed. At the end of the process, the transaction is confirmed and entered into the blockchain. In reality, in professional jargon, we are not talking about transaction fees, but rather an economic incentive. (Brazil, the next domino for Bitcoin?)

The economic incentive makes it possible to obtain very high security and perfect decentralization . This incentive does not only include transaction fees. In fact, to these costs are added the reward . It corresponds to a certain quantity of cryptocurrencies – bitcoin (BTC) for example – given to have validated the block having found the correct hash. 

Elements that cause the value of transaction fees to vary 

Transaction fees are paid every time a cryptocurrency user creates and sends digital assets over the network. These fees are based on the difference between the inputs and the outputs of the transaction. Today, almost all digital wallets perform this calculation automatically. Then a fee value is set from the wallet.

How much are the transaction fees ? Contrary to what you might think, there are no predefined values. The value of fees changes over time. It also depends on the number of transactions awaiting validation. Finally, a last element varies the cost. This is the time required for the transaction to be validated and added to the blockchain. (Bitcoin (BTC) and other cryptocurrencies: Is Russia planning to follow China’s footsteps)

Like fiat currencies, transaction fees are expressed in a specific unit: the sat / b, in the case of bitcoin (BTC). The sat / b is the satoshi / byte. In other words, it is the number of satoshis to pay for each byte of length of a transaction. 

Transaction fees that will be reduced?

When we talk about transaction fees, there is one element that we generally forget to take into account. Who ? These fees have the ability to reduce the usefulness of cryptocurrencies like bitcoin (BTC). (Revelations on Tether (USDT), Celsius threatened?)

Indeed, whatever the artificial transactional capacity, chosen, BTC is not infinitely scalable. Therefore, a selection in the transactions should be made based on the fees that are paid by the users of the blockchain. As a result, a transaction for which these fees are high will be processed faster than one for which the fees are low. (Coinbase proposed to create a crypto regulator)

It should be noted that there is no reason to believe that the costs of transactions on the blockchain can be lowered. For good reason, they increase according to the demand for block space, the supply of which is limited. As a result, over time the block space becomes more and more in demand and the bids for this space become considerable. As a result, it is not possible to expect a low enough level of fees. 

All cryptocurrency users notice that when they make transactions, they have to pay fees. We are talking about fees . The fees are paid to reward children who validate transactions to integrate the blockchain. Their value is not precisely defined. Indeed, it is based on several elements: the necessary waiting time, the type of cryptocurrency, the period during which the transaction was carried out, etc. 

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