Transaction Fee (TX Fee)

Transaction Fee (TX Fee)When you transfer bitcoins from one address to another, you can optionally pay a transaction fee, which is also called a miner's or blockchain fee. These fees were implemented in 2015 and are offered for transactions with the large data size. Payment of a TX fee ensures that your bitcoin transfers arrive on time.

What Is a Transaction Fee (TX Fee)?

It is a certain amount that is charged to users when performing bitcoin transactions. The fee is collected by miners as a reward for maintaining the Bitcoin network. When a new bitcoin block is successfully generated, a user who has created the block can assign the transaction fees to themselves. The size of a fee currently varies between 200 and 45,200 satoshis per byte.

TX fees are optional on the part of the person transferring the bitcoins, to make sure that their transaction will be included in the next generated block. The sender can choose to pay a higher fee in order to speed up the TX.

After you make a Bitcoin transaction as a sender, it ends up in the queue called a mempool where it waits for confirmation to be included in the block. The recipients typically require between 2 and 6 confirmations to consider the transaction as valid. After your transaction is included in a block and thus confirmed for the first time, you will need to wait for about 10 minutes for each additional confirmation. You can check the mempool size before you decide to transfer bitcoins – if it is small, then there is a chance that your TX will be processed fast even with a minimal fee. As of June 2019, the average mempool size is 12 MB.

A TX fee should not be confused with a mining reward or block reward. Currently, this reward is 12.5 BTC and will be halved with every 210,000 blocks. A TX fee is an extra amount for processing transactions within the blockchain.

It is predicted that the block rewards will disappear completely by the year 2140 because all 21,000,000 Bitcoins will be in circulation. Therefore, TX fees will be the only income that the miners will be getting. It is also expected that over time, the cumulative effect of transaction fees will allow somebody generating new blocks to "earn" more bitcoins that will be mined from new bitcoins created by the new block. This is also an incentive to keep trying to create new blocks even if the newly created block does not bring any value.

Transaction Fee Conditions

You can send a transaction without a fee if it meets these conditions:

  • It is smaller than 1,000 bytes (A TX size is a code generated from input and output addresses participating in this transaction).

  • All outputs are 0.01 BTC or larger.

  • Its priority is large enough.

To avoid the enforced limit, transactions need to have a priority above 57,600,000. It is calculated according to this formula:

priority = sum (input_value_in_base_units * input_age) / size_in_bytes

For example, if a transaction has 2 inputs, one of 10 BTC with 12 confirmations, and one of 5 BTC with 10 confirmations, and has a size of 800 bytes, it will the following priority:

(1,000,000,000 * 12 + 500,000,000 * 10) / 800 = 21,250,000

Summing Up

A TX fee is an amount charged by miners for processing your bitcoin transactions. This fee is optional, but if you do not pay it, it may take a long time to process your transaction and include it in the block. Transactions smaller than 1,000 bytes, with outputs of 0.01 BTC or larger, and with priority above 57,600,000 can be sent without a fee.