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Transaction fees – Bitcoin Wiki

Transaction fees

Transaction fees may be included with any transfer of bitcoins from one address to another.

Contents

The market for block space

The transaction fee is received by the bitcoin miner. When a fresh bitcoin block is generated with a successful hash, the information for all of the transactions is included with the block and all transaction fees are collected by that user creating the block, who is free to assign those fees to himself. Traditionally, the sender pays the total Bitcoin network fee; deducting the fee from the amount received by the recipient will often be considered an incomplete payment, albeit some wallets have a “sender-pays-fee” feature where the miner fee is deduced from send amount.

Transaction fees are voluntary on the part of the person making the bitcoin transaction, as the person attempting to make a transaction can include any fee or none at all in the transaction. On the other mitt, nobody mining fresh bitcoins necessarily needs to accept the transactions and include them in the fresh block being created. The transaction fee is therefore an incentive on the part of the bitcoin user to make sure that a particular transaction will get included into a block.

It is envisioned that over time the cumulative effect of collecting transaction fees will permit somebody creating fresh blocks to “earn” more bitcoins than will be mined from fresh bitcoins created by the fresh block itself. This is also an incentive to keep attempting to create fresh blocks as the creation of fresh bitcoins from the mining activity goes towards zero in the future.

Because of deep technical reasons, bitcoin block space is a scarce commodity, getting a transaction mined can be seen as purchasing a portion of it. The price of block space is set by supply and request, albeit in the real world the supply of space for transactions is utterly noisy, because more becomes available (and has to be instantly consumed or it’s lost forever) every time a block is mined, and block mined is an intentionally random process, that randomness being essential for bitcoin’s operation. Request is random and cyclical. Random because each transaction is generated individually so the total amount is noisy (albeit that averages out to be somewhat slick at scale) and has both daily and weekly cycles, with more transactions done during the day than at night. Request can also be affected by speculative movements in the exchange rate. [1]

Therefore the market for block space asks users to make a tradeoff inbetween confirmation time and cost. Users with high time requirements may pay a higher than average miner fee to be confirmed quickly, while more patent users under less time pressure can save money by being ready to wait longer.

Reference Implementation

The following sections describe the behavior of the reference implementation as of version 0.12.0. Earlier versions treated fees differently, as do other popular implementations (including possible later versions).

Sending

Users can determine to pay a predefined fee rate by setting `-paytxfee=<n>` (or `settxfee <n>` rpc during runtime). A value of `n=0` signals Bitcoin Core to use floating fees. By default, Bitcoin Core will use floating fees.

Based on past transaction data, floating fees approximate the fees required to get into the `m`th block from now. This is configurable with `-txconfirmtarget=<m>` (default: `2`).

Sometimes, it is not possible to give good estimates, or an estimate at all. Therefore, a fallback value can be set with `-fallbackfee=<f>` (default: `0.0002` BTC/kB).

At all times, Bitcoin Core will cap fees at `-maxtxfee=<x>` (default: 0.Ten) BTC. Furthermore, Bitcoin Core will never create transactions smaller than the current minimum relay fee. Ultimately, a user can set the minimum fee rate for all transactions with `-mintxfee=<i>`, which defaults to one thousand satoshis per kB.

Note that a typical transaction is five hundred bytes.

Including in Blocks

This section describes how the reference implementation selects which transactions to put into fresh blocks, with default settings. All of the settings may be switched if a miner wants to create larger or smaller blocks containing more or fewer free transactions.

Then transactions that pay a fee of at least 0.00001 BTC/kb are added to the block, highest-fee-per-kilobyte transactions very first, until the block is not more than 750,000 bytes big.

The remaining transactions remain in the miner’s “memory pool”, and may be included in later blocks if their priority or fee is large enough.

For Bitcoin Core 0.12.0 zero bytes [Two] in the block are set aside for the highest-priority transactions. Transactions are added highest-priority-first to this section of the block.

Relaying

The reference implementation’s rules for relaying transactions across the peer-to-peer network are very similar to the rules for sending transactions, as a value of 0.00001 BTC is used to determine whether or not a transaction is considered “Free”. However, the rule that all outputs must be 0.01 BTC or larger does not apply. To prevent “penny-flooding” denial-of-service attacks on the network, the reference implementation caps the number of free transactions it will relay to other knots to (by default) fifteen thousand bytes per minute.

Transaction fees – Bitcoin Wiki

Transaction fees

Transaction fees may be included with any transfer of bitcoins from one address to another.

Contents

The market for block space

The transaction fee is received by the bitcoin miner. When a fresh bitcoin block is generated with a successful hash, the information for all of the transactions is included with the block and all transaction fees are collected by that user creating the block, who is free to assign those fees to himself. Traditionally, the sender pays the total Bitcoin network fee; deducting the fee from the amount received by the recipient will often be considered an incomplete payment, albeit some wallets have a “sender-pays-fee” feature where the miner fee is deduced from send amount.

Transaction fees are voluntary on the part of the person making the bitcoin transaction, as the person attempting to make a transaction can include any fee or none at all in the transaction. On the other palm, nobody mining fresh bitcoins necessarily needs to accept the transactions and include them in the fresh block being created. The transaction fee is therefore an incentive on the part of the bitcoin user to make sure that a particular transaction will get included into a block.

It is envisioned that over time the cumulative effect of collecting transaction fees will permit somebody creating fresh blocks to “earn” more bitcoins than will be mined from fresh bitcoins created by the fresh block itself. This is also an incentive to keep attempting to create fresh blocks as the creation of fresh bitcoins from the mining activity goes towards zero in the future.

Because of deep technical reasons, bitcoin block space is a scarce commodity, getting a transaction mined can be seen as purchasing a portion of it. The price of block space is set by supply and request, albeit in the real world the supply of space for transactions is utterly noisy, because more becomes available (and has to be instantaneously consumed or it’s lost forever) every time a block is mined, and block mined is an intentionally random process, that randomness being essential for bitcoin’s operation. Request is random and cyclical. Random because each transaction is generated individually so the total amount is noisy (albeit that averages out to be somewhat slick at scale) and has both daily and weekly cycles, with more transactions done during the day than at night. Request can also be affected by speculative movements in the exchange rate. [1]

Therefore the market for block space asks users to make a tradeoff inbetween confirmation time and cost. Users with high time requirements may pay a higher than average miner fee to be confirmed quickly, while more patent users under less time pressure can save money by being ready to wait longer.

Reference Implementation

The following sections describe the behavior of the reference implementation as of version 0.12.0. Earlier versions treated fees differently, as do other popular implementations (including possible later versions).

Sending

Users can determine to pay a predefined fee rate by setting `-paytxfee=<n>` (or `settxfee <n>` rpc during runtime). A value of `n=0` signals Bitcoin Core to use floating fees. By default, Bitcoin Core will use floating fees.

Based on past transaction data, floating fees approximate the fees required to get into the `m`th block from now. This is configurable with `-txconfirmtarget=<m>` (default: `2`).

Sometimes, it is not possible to give good estimates, or an estimate at all. Therefore, a fallback value can be set with `-fallbackfee=<f>` (default: `0.0002` BTC/kB).

At all times, Bitcoin Core will cap fees at `-maxtxfee=<x>` (default: 0.Ten) BTC. Furthermore, Bitcoin Core will never create transactions smaller than the current minimum relay fee. Eventually, a user can set the minimum fee rate for all transactions with `-mintxfee=<i>`, which defaults to one thousand satoshis per kB.

Note that a typical transaction is five hundred bytes.

Including in Blocks

This section describes how the reference implementation selects which transactions to put into fresh blocks, with default settings. All of the settings may be switched if a miner wants to create larger or smaller blocks containing more or fewer free transactions.

Then transactions that pay a fee of at least 0.00001 BTC/kb are added to the block, highest-fee-per-kilobyte transactions very first, until the block is not more than 750,000 bytes big.

The remaining transactions remain in the miner’s “memory pool”, and may be included in later blocks if their priority or fee is large enough.

For Bitcoin Core 0.12.0 zero bytes [Two] in the block are set aside for the highest-priority transactions. Transactions are added highest-priority-first to this section of the block.

Relaying

The reference implementation’s rules for relaying transactions across the peer-to-peer network are very similar to the rules for sending transactions, as a value of 0.00001 BTC is used to determine whether or not a transaction is considered “Free”. However, the rule that all outputs must be 0.01 BTC or larger does not apply. To prevent “penny-flooding” denial-of-service attacks on the network, the reference implementation caps the number of free transactions it will relay to other knots to (by default) fifteen thousand bytes per minute.

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