Fees in Bitcoin are perplexing

[shakenbake666]

Disclaimer: I'm very new to Bitcoin so have patience.

I made my first transaction this morning to a wallet. It cost me a measly $4 for about an $850 transaction. That's not all that much but it still got me wondering why. At that point, a debit card is still way better because i paid a $0 fee on a sausage egg and cheese mcmuffin shortly after. This is a big problem for Bitcoin I'd imagine. Imagine a currency we want use and have the general public adopt. But we tell them it will cost them $ every time they use it. It's simply not going to happen.

From what I read, the fee goes to the miner who mined the block of which my transaction was contained in (correct me if I'm wrong). But why? Am i simply paying for the electricity it takes for the miner to verify my one transaction? or is it something else? what exactly is being paid for? the default 1000 satoshis/kB seems pretty arbitrary. How is this number even determined in the first place?

It would make sense to me for the miner to eat the cost of transaction verification as a cost of doing business. Clearly its very profitable mining for the huge mining pools. So by eating the cost of the transactions, would it still be? i don't really know because i don't know what it's actually paying for. Bottom line is fee to consumer to simply make a transaction is a non starter for any sort of widespread adoption. Keep in mind my knowlege level is very low, so I'm really just trying to understand where this money is going and what it's going towards and most importantly how you can make the currently better and more approachable than just cash or a credit card that don't charge fees

[Xavofat]

i paid a $0 fee on a sausage egg and cheese mcmuffin shortly after.

Credit and debit cards actually have fairly high fees and quite an inefficient system.  It's just that these fees are imposed on the merchant rather than the user, so to the user it appears like no fee.

This is a way that centralised systems can appear more appealing, but not necessarily a way in which they're better.

what exactly is being paid for?

You're paying for space in the blockchain (Bitcoin's distributed ledger of transactions, which is used to prevent people from spending the same coins twice).

This used to be pretty much free, but now the blocks (which make up the blockchain - basically groups of transactions) are becoming full and some people oppose increasing the maximum size due the possibility that it would be a strain on all the people who have to store it.

Naturally when the blocks are full, fees become more expensive because people essentially compete to have a fee high enough to fit their transaction into a block.

How is this number even determined in the first place?

You can pay whatever fee you like.  The fee which is expected to incentivise miners to include your transaction into a block varies depending on what the market are willing to pay (supply and demand of space in the blockchain).

[junoon]

you're paying for the great possibility of more than 1000% interest per year 

[Ruderalis]

Hi shakenbake666,

It could be hard to explain why these high fees in a few words but I'll try. There is a limit on the number of transactions that can be processed by the miners each block (cause of these blocks have a limit of 1mb) so with the number of transactions growing, fees makes your transaction more "appreciated" for miners to be included in the next block, the more transactions the more high fees for validate it (and more time to get it) these is basically why the transactions have been growing in the last years, and the reasons of the scalability debate that finished with the hard fork of bitcoin cash. Then I would like recommend you to find more about bitcoin cash raison d'etre

[KKaruchis]

I don't know from which wallet were you sending, but some wallets allow you to do very low fees, the transactions with higher fees are the ones who are more likely process first.
i've seen people here using the very low fee and ask for free aceleration services instead of paying high fees and it worked for many.

[TorbiK]

Look at the commissions for bank transfers. How long does this translation take? And with Bitcoin, everything is much simpler and cheaper.

[LoyceV]

Credit and debit cards actually have fairly high fees and quite an inefficient system.

You're right about credit cards: they have high fees, up to several percent of the total amount.
Debit cards on the other hand, at least in my country (NL), have fixed fees of only a few cents per transaction. Handling cash is usually more expensive.

Bitcoin needs scaling: once it can handle much more transactions at much lower fee, it can handle much more users and actually grow in real-world applications. Bitcoin doesn't need miners who earn $20M per day, but ever since fees went up, miners have only seen their paycheck go up.

[levancov]

thanks for your helpful answers

[shakenbake666]

These responses are interesting.

It seems Bitcoin is highly incentived to the merchant and not the consumer. Imagine Joe Shmmoe went to Mcdonalds for a sausage egg and cheese and there was a sign that said Bitcoin and $ accepted only. No VISA accepted here. Joe would either go get some cash which is a pain in the ass most of the time or go get some bit coin. So there is your consumer incentive. If the places you go service bitcoin uses and not plastic users people would use it more for sure. Nevertheless the fee system needs to be lowered or eliminated. in order for adoption, we need it to be BETTER than cash for eveyone not just one party. Then it is a no brainer for adoption.

It seems now fees are just a "place in line" fee for the transaction to be confirmed. Which is quite silly if you think about it. no transaction should be more important than the other. The space bottleneck should be fixed. I know that is opening a can of worms though. Almost all of the high up developers oppose any hard fork to double the block size stating that it would make Bitcoin more centralized since only enormous corporate computers would be big and powerful enough to store and manage the block chain. Other thing could just be speed. Make the network faster somehow so you didn't need to pay for a spot in line to get your transaction on the ledger

[angaper]

These days I also have to pay fees as high as $10 or more per transaction, which seems excessive, however for quite some time I have come to the conclusion that in reality the bitcoin should not be used as a currency ideal to cover our daily expenses. That is a very short view about what is truly valuable in bitcoin.

If we take it for what it really is, the digital gold of our times, nobody would go to the store to buy cigarettes with solid gold. There are many other options to pay for these things. As you say, you may want to pay for your food with your credit card or other altcoins, but bitcoin should be treasured as a long-term investment.

[Xavofat]

Make the network faster somehow

Well, increasing the block speed would have pretty much the same effect as increasing the block size.  Plus, there are other perceived problems from this.

The problem is that consensus is very hard to achieve.  Pretty much any proposal which people suggest will be somewhat contentious, so over the next couple years we might end up with a fork in which it's ambiguous which is "Bitcoin" and which isn't.

Debit cards[...]have fixed fees of only a few cents per transaction.

Interesting.  Edited my previous post.

[uszaty43]

People is never going to understand that bitcoin can not be used anymore to send payments of $5 or $10. They all should know that sending big payments is the only way to do not be worried about the fees.

I made my first transaction this morning to a wallet. It cost me a measly $4 for about an $850 transaction.

Miners are always putting their own cost, nobody can determine that, they are fucking bitcoin and you should know that. Go back to November 12th, they almost killed bitcoin because they wanted more profits, so they moved to bcash. Now they are back again in here..

From what I read, the fee goes to the miner who mined the block of which my transaction...... How is this number even determined in the first place?

Then why dont you use cash or credit cards? If you use CC you wont have to pay fees, but you need to pay monthly fees for the usage of the card. And an anual renewal of more than 70$ per card (it depends on what kind of card are you using [visa/mastercard/amex])

than just cash or a credit card that don't charge fees

[stompix]

Disclaimer: I'm very new to Bitcoin so have patience.

]I made my first transaction this morning to a wallet. It cost me a measly $4 for about an $850 transaction. That's not all that much but it still got me wondering why. At that point, a debit card is still way better because i paid a $0 fee on a sausage egg and cheese mcmuffin shortly after. This is a big problem for Bitcoin I'd imagine. Imagine a currency we want use and have the general public adopt. But we tell them it will cost them $ every time they use it. It's simply not going to happen.

From what I read, the fee goes to the miner who mined the block of which my transaction was contained in (correct me if I'm wrong). But why? Am i simply paying for the electricity it takes for the miner to verify my one transaction? or is it something else? what exactly is being paid for? the default 1000 satoshis/kB seems pretty arbitrary. How is this number even determined in the first place?

It would make sense to me for the miner to eat the cost of transaction verification as a cost of doing business. Clearly its very profitable mining for the huge mining pools. So by eating the cost of the transactions, would it still be? i don't really know because i don't know what it's actually paying for. Bottom line is fee to consumer to simply make a transaction is a non starter for any sort of widespread adoption. Keep in mind my knowlege level is very low, so I'm really just trying to understand where this money is going and what it's going towards and most importantly how you can make the currently better and more approachable than just cash or a credit card that don't charge fees

Let me clear some misunderstandings

1.Yeah, credit cards or debit cards are cheaper for the consumer for small payments, no point in arguing here.
Till the 100$ level, better go with cc.

2. Yes fees go indeed to the miner. You are not paying for the electricity bill however.
There is limited space in one block with one block every 10 minutes.
You are thus in competition with other users to get your tx included in a block. If there were no competition your tx would go though even with the lowest fee possible.
2.b That fee is the suggested by your wallet. What wallet you use?

3. There is no cost of transaction verification. Miners mine blocks for the block reward and the transaction fees. They are unable to set a fee.

Credit and debit cards actually have fairly high fees and quite an inefficient system.  It's just that these fees are imposed on the merchant rather than the user, so to the user it appears like no fee.

You know that when you pay via Bitpay the merchants also gets a 1% tax?
If he tries to deal only with bitcoins, with no 3rd party he has to generate a lot of addresses for each order to identify them  and then collect the coins which involves another transfer, and another fee.






  

[Hakkerman101]

Fees are high because transaction capacity has become an artificially scarce resource. There’s only 1MB of data allowed per Bitcoin block, or in other words, only 1 MB of data allowed every 10 minutes. It’s a piddling amount of data, considering that my home internet connection has a download speed that’s 420,000% greater. It’s important to realize that transaction capacity is currently scarce because of a limit that was placed into the code and that has been kept there intentionally by the Bitcoin Core developers.

Without this artificial limit, there could still theoretically be a scarcity for transaction space, but it would be purely market driven (based on the willingness of miners to produce bigger blocks.). As it is now, this artificial constraint of 1MB means that you have compete with everyone else and simply outbid the rest of the world.

Sucks, right?

[tech72]

If you take cross-border wire transfer fees, then you will be amazed at how cheap a Bitcoin transaction is. The cost is $90+ (fixed).

[Yakamoto]

Disclaimer: I'm very new to Bitcoin so have patience.

I made my first transaction this morning to a wallet. It cost me a measly $4 for about an $850 transaction. That's not all that much but it still got me wondering why. At that point, a debit card is still way better because i paid a $0 fee on a sausage egg and cheese mcmuffin shortly after. This is a big problem for Bitcoin I'd imagine. Imagine a currency we want use and have the general public adopt. But we tell them it will cost them $ every time they use it. It's simply not going to happen.

From what I read, the fee goes to the miner who mined the block of which my transaction was contained in (correct me if I'm wrong). But why? Am i simply paying for the electricity it takes for the miner to verify my one transaction? or is it something else? what exactly is being paid for? the default 1000 satoshis/kB seems pretty arbitrary. How is this number even determined in the first place?

It would make sense to me for the miner to eat the cost of transaction verification as a cost of doing business. Clearly its very profitable mining for the huge mining pools. So by eating the cost of the transactions, would it still be? i don't really know because i don't know what it's actually paying for. Bottom line is fee to consumer to simply make a transaction is a non starter for any sort of widespread adoption. Keep in mind my knowlege level is very low, so I'm really just trying to understand where this money is going and what it's going towards and most importantly how you can make the currently better and more approachable than just cash or a credit card that don't charge fees

The $4 could have been as low as $0.30, it's not like it scales that much when it comes to transactions like that, it's all about the data size of the transaction most of the time. I'm surprised that you haven't seen the absolute lowest it can go yet. No worries though, everyone is new at some point. The debit card has a fee of $0 because you aren't paying it, the merchant is. It's all a numbers game and typically you could be spending only around $1 for both the merchant and the users to spend their transactions wherever they need to go.

You're paying for security and priority at this point, not a whole lot else. $4 is actually really high and I've only paid in like that once or twice over the past year. Low fees otherwise.

[Xavofat]

You know that when you pay via Bitpay the merchants also gets a 1% tax?

That's a third party service charge - if a user wants to pay with a credit card, it's inevitable that the merchant will pay credit card fees and those two things are directly linked.

Regardless, credit card fees in many cases are dramatically higher than 1%.

If he tries to deal only with bitcoins, with no 3rd party he has to generate a lot of addresses for each order to identify them  and then collect the coins which involves another transfer, and another fee.

They could get QR codes on a device there.  It wouldn't be too hard to set up software to accept BTC and then sell it later, especially when on a larger scale.

[minersday]

Yep, i sent a wire transfer to a guy last year, and i had to pay more than $30 just for paying those fees.

And i only sent $250, so it was not worth it.

If you take cross-border wire transfer fees, then you will be amazed at how cheap a Bitcoin transaction is. The cost is $90+ (fixed).

i dont know why you all are complaining about the rates of the fees, is it not a very difficult thing to understand.

There is much more people using bitcoin than before, and this is the main reason of why the blockchain is a little bit more congestionated than before (obviously)

And you have to pay those fees, and yes $5 is nothing, i guess that nobody is trying to send payments with less than $10 because it would be insane.

[ZainSpider]

Everything has its pros and cons, bitcoin has many pros but the high fee is the con of bitcoin. I hope devs will do something to lower the fee soon.

[shakenbake666]

I don't know from which wallet were you sending, but some wallets allow you to do very low fees, the transactions with higher fees are the ones who are more likely process first.
i've seen people here using the very low fee and ask for free aceleration services instead of paying high fees and it worked for many.

I am currently using an electrum wallet. I didn't realize you can pay whatever fee you want. At this point though I'm not really sure how.