Cryptonomics: What are Blockchain Transaction Fees

Blockchain fees are a vital part of the blockchain network cryptonomics. They serve two essential purposes — reward miners who validate your crypto transactions and shield the network from spam attacks.

By
Ifeanyi Egede
on
May 10, 2021
Category:
Cryptonomics

Who Are Miners?

They are powerful computers that make and connect the blockchain network. Miners are largely responsible for the validation and confirmation of transactions. In fact, they decide on which transactions to include in the blockchain, as well as the order of inclusion.


What Influences Transaction Fees?

You may have noticed that some blockchain fees are small while others seem outrageous. The charges per transaction depend on certain conditions. Firstly, network activities. For instance, if the network is congested, your charge may increase substantially. On the flip side, a plain-sailing network normalizes your charges.  A block can only accommodate a limited number of transactions. 

Whenever many users make transactions at once, most of them will await confirmation.  Pending the confirmation time, they will all remain in the mempool (Memory pool), where miners will prioritize higher-paying transactions. Secondly, market forces can tamper with the amount you pay for the transaction fee. 

Thirdly, transaction size can cause a price hike. Miners find it easy to validate small transactions. That’s  why they often prioritize them. But if a user pays handsomely for a big transaction, It will equally be prioritized.  Whatever the case may be, the price of blockchain fees breed some difficulties. Expensive fees such as those on Ethereum hinder new users and the rise of cheap layer-1 networks such as the BSC 


Why are Transaction Fees Important? 

One of the reasons fees are essential is because it reduces spam attacks on the network.  When a blockchain transaction is too cheap, the risk of large-scale attacks on the network is higher. On the other hand, a reasonably priced fee deters large spam attacks.  Confirmation of transactions on the blockchain is hinged on how valuable the fee is. So, if you want your transaction to make the next block, you need to pay a reasonable fee


How Are Transaction Fees Calculated?  

Crypto blockchain transactions don’t work the same way. For instance, Bitcoin works differently in comparison to Ethereum and other crypto. Let’s check out how each crypto’s charge is calculated.

Bitcoin

Contrary to general belief, Bitcoin fees aren’t hinged on the amount of bitcoin involved in the transaction. It’s calculated based on the size of the deal in bytes. For instance, assuming your transaction size is 300 bytes and the average fee for a transaction is 75 Satoshi per byte, you will need to pay about 30,000 satoshis for a higher chance of hasty validation.

When market volatility is at an all-time high, the transaction fee for fast confirmations rises as well. These exorbitant fees are part of the challenges facing the daily use of cryptos. With the limit on the bytes each block can take, miners attempt to hasten the process. However, the market is huge, and this attempt often seems insufficient.  As a matter of fact, the scalability of cryptocurrency affects PoW chains a great deal. However, blockchain developers are working non-stop to improve the situation. 

Most bitcoin wallets use a dynamic fee structure so you don’t need to calculate your own fees. But this same dynamism gives you the chance to avoid paying any fee at all. Although if you decide not to pay any fee, your transaction will most likely be ignored by miners. This means the confirmation will keep pending. 

Ethereum

Ethereum transaction fees differ from Bitcoins. An Ethereum blockchain fee depends on the amount of gas your transaction requires. Gas simply means the computing power your transaction will consume while being processed.

The conditions needed to calculate your Ethereum blockchain fee is as follows:

  • Your gas cost, which is the amount of computing power your transaction needs.  
  • Gas price, which is the amount paid for every hour of work.  
  • And the gas limit, which is the maximum cost of a particular deal/contract. 

All these conditions will determine the total charges for a transaction.  When Ethereum approaches the proof of stake model, the gas fees are expected to reduce. Although, network traffic can still affect the charges.

Binance Chain Transaction Fees

This blockchain allows users to effortlessly trade and deal in BEP-2/BNB tokens. It uses a consensus mechanism that requires the use of validators instead of miners. This system enables direct trades from crypto wallets.  Binance Chain’s official crypto, BNB, serves as the gauge for measuring transaction fees. So, the BNB market price controls the transaction price on the Binance chain. The price of a transaction can either rise or fall in response to market changes.

Conclusion

As more users begin using blockchains, complaints about network issues will arise. For some users, their concern is the blockchain fees they pay for each transaction. This article has revealed just how important those fees are and how essential it is to network. Hopefully, you understand how the blockchain runs its confirmation;  if you need instant validation, you know what to do. 

Tags:
No items found.
Ifeanyi Egede

Ifeanyi Egede is an experienced and versatile crypto writer and researcher on fintech, the blockchain and emerging technologies. He has several published works online and in the print media. He loves reading, research, traveling, meeting people and football. When he is not writing, he spends time with his lovely wife and kids

Text Link

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.