Fees and mining

[Akupuniard]

I'm very, very interested in one thing. I have already asked that and nobody gave me a distinct answer: how do transaction fees and mining correlate? Why is everyone saying that fees go to reward miners? Mining is a process of supporting and simultaneous generation of Bitcoins. Where on earth did fees appear in this scheme?

Who pays them and to whom exactly? And how they decide who deserves most?

Please answer me, because everyone who is talking about that is like implying this is something obvious.

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[P-Funk]

Start here https://en.bitcoin.it/wiki/Transaction_fees

[pedrog]

Besides the block subsidy, currently 25 new bitcoins, miners also collect transaction fees.

Eventually there will be no new bitcoins to generate and the only reward miners collect will be transaction fees.

[Pasnik]

Who pays them and to whom exactly? And how they decide who deserves most?

The people making the transactions will pay them. The ones who pay the highest fee will get their transactions processed first.

[Akupuniard]

Start here https://en.bitcoin.it/wiki/Transaction_fees

Holy cow, everything is much more complicated than I thought to myself. Thanks for the info, studying carefully.

[shorena]

I'm very, very interested in one thing. I have already asked that and nobody gave me a distinct answer: how do transaction fees and mining correlate? Why is everyone saying that fees go to reward miners? Mining is a process of supporting and simultaneous generation of Bitcoins. Where on earth did fees appear in this scheme?

Who pays them and to whom exactly? And how they decide who deserves most?

Please answer me, because everyone who is talking about that is like implying this is something obvious.

A transaction has inputs (formerly received coins you now use) and outputs (coins you send to someone else or yourself). The fee is the sum of all inputs minus the sum of all outputs.

Let assume you have 1 BTC you received via 2 transactions for 0.5. You want to send 0.9 to Alice and pay a 0.01 BTC fee.

You would use both your inputs, create one output for 0.9 to alice's address and one output for 0.09 for one of your change addresses.

Sum of inputs = 0.5 + 0.5
Sum of outputs = 0.9 + 0.09
inputs - outputs = 0.01 (the fee you pay)

When your transaction is confirmed the "missing" 0.01 btc becomes available in the coinbase transaction for the miner (or pool) that found that block which includes your transaction into the blockchain. Miners can not cheat here, because it would make the block invalid and you cant cheat because it would make your transaction invalid.

Edit: changed the fee to 0.01 because I constantly messed up the number of 0's

[DannyHamilton]

It is important to remember that bitcoin is a voluntary system.

You are not required or forced to include any specific amount of fee. You voluntarily choose the fee that you think is appropriate (or you voluntarily choose a wallet that has some fee decision-making built in).

Equally, all the peers on the network are not forced to relay your transaction.  They can avoid relaying your transaction if they feel that your fee is too small or that you are creating "dust" outputs that are so small that they'd cost more to spend than they're worth.

Equally, miners are not forced to confirm your transaction.  Miners (or mining pool operators) get to choose which transactions they want to confirm, and they don't have to confirm ANY transactions in their blocks at all if they don't want to.

So, by paying a reasonable fee with your transaction you encourage peers to relay your transaction. You also provide an incentive to the miners (or mining pool operators) to choose to confirm your transaction in their block, since they can increase their revenue by including your transaction.

If a miner is going to choose between confirming a transaction that pays a reasonable fee, and a transaction that doesn't pay any fee at all, which transaction do you think is more likely to be included in the next block?

[Amph]

and they don't have to confirm ANY transactions in their blocks at all if they don't want to.

is this another way to kill bitcoin basically? i knew that miners have power but not that much, to kill adoption

this sound like more dangerouns than any attack to the network...

[Kprawn]

Apart from incentivising future replacement of miners rewards, it also serve a dual purpose. The people who wants faster transaction confirmation, will

pay higher fees and these transactions will get prioritized above other transactions with lower fees. This makes this whole experiment so wonderful.

You pay for better service... not like banks, where everyone pay a flat fee, and you get a shitty service all round.  

[DannyHamilton]

is this another way to kill bitcoin basically? i knew that miners have power but not that much, to kill adoption

this sound like more dangerouns than any attack to the network...

If you already control more hash power than the rest of the entire world combined, then you can completely control which transactions get confirmed, and you can take ALL the block rewards, so that no other miners can earn any money at all.  At that point you can do many destructive things to cause people to lose faith in bitcoin and stop using it.

Of course maintaining more hash power than the rest of the entire world combined is a pretty expensive and difficult thing to accomplish.

If you don't control more hash power than the rest of the entire world combined, then you are only solving a small percentage of the blocks on the blockchain.  If you choose not to confirm transactions that pay a reasonable fee, then all the other miners out there will include those transactions in their blocks.  They will earn more revenue than you.  You will find that you are spending more money on capital investment and ongoing mining costs than you are earning in mining revenue.  In other words, you will find yourself bleeding money and you won't be able to afford to keep up with advances in mining technology unless you continuously sink more money into the project. That's a really expensive way to only slightly reduce the number of transactions that bitcoin processes per week, while improving the profits of all the miners that choose to actually confirm transactions.

[calkob]

eventually the block reward becomes less and less so someday it is seen that fees will be what rewards miners for their service......

[tommygunyeah]

To begin with the transaction fee, it is processed by and received by the bitcoin miner.


When a new 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.

[blackraven1425]

Someday there will be no mining and all this infra-structure will be used to support transactions. Then we'll really see instant transactions...

[odolvlobo]

Someday there will be no mining and all this infra-structure will be used to support transactions. Then we'll really see instant transactions...

The word "mining" is somewhat of a misnomer. It is more than just creating bitcoins.


The process of Bitcoin mining has 3 aspects:

• 1. Validating transactions,
• 2. Collecting the validated transactions into a block,  and
• 3. Winning the right to publish the block

The miner that wins the right to publish a block is able to collect the transaction fees, plus the subsidy. The subsidy is the source of new bitcoins. Eventually, the subsidy will go to 0, but mining will continue even after that as miners will still gain revenue from the transaction fees.