What is a bitcoin transaction fee?
Simply put, a bitcoin transaction fee is sent alongside a bitcoin transaction. These transaction fees (sometimes called miner fees) are sent as an incentivization alongside the transaction to encourage the miners to include the transaction in the next block of bitcoin. This of course, is how we can be certain that transactions confirmed on the bitcoin blockchain are immutable. Fees can range from pennies to tens (or sometimes hundreds!) of dollars. This is determined on a “sats per byte” ratio – how many satoshis are you paying per byte of data in your transaction.
Who gets the bitcoin transaction fee?
Bitcoin transaction fees are paid directly to the miners. They are added onto the bitcoin transaction and the miners know what has been allocated to them. The miners are programmed not to take more, or less than their allotted transaction fee. They also have ability to include, or not include, certain transactions. The transaction fee is generally suggested by your bitcoin wallet, but you can also look at the mempool to see how much of a fee you should include with your bitcoin transaction in order to have it be confirmed in your desired time frame.
How do bitcoin exchanges charge transaction fees?
There are really two ways to send bitcoin transactions.
- As an independent transaction
- As part of a batch
Batches, while not great for privacy, are outstanding for cost savings. You can essentially pool transactions together, and offer a larger fee to the miner. This makes your per transaction cost significantly lower. The opposite, is great for privacy but costs more.
We have seen bitcoin exchanges try to “have their cake and eat it too”. They charge each customer a fee, and then batch transactions anyways. This is the wrong way to do it.
What is the right way to do it?
At Bitcoin Well – we offer both options and are transparent about where the money goes. If you choose the “free” option, we cover the miner fee. This means you pay less and receive more sats for your transaction. However, it also means that you need to wait a little bit before your transaction is broadcast, and you rely on us to send with the appropriate fee (which we do!)
The alternative is to pay a transaction fee. This fee is paid directly to the miners, we do not mark it up, double charge you or try to play games. Your transaction is then not put into the queue for our batch, and is put into its own transaction and immediately broadcast with your specified transaction fee. The transaction fee is taken out of your total amount of bitcoin purchased.
What's better for me, as a customer?
It depends (what a cop-out answer, eh?)
Do you want to preserve some privacy and don’t mind paying the little bit extra? Select a low bitcoin transaction fee. Do you need your transaction broadcast and confirmed ASAP? Select a high bitcoin transaction fee? Are you trying to stack as many sats as possible? Choose no fee and be included in our batch.
I guess, at the end of the day, you need to select the transaction speed and costs that suits you and your needs for each and every transaction. And Bitcoin Well is paving the way, giving you the options and tools to do that.