How BitCoin works (basic)

[nightwolf]

Hi All,

Great to be on the DB. I've been following the discussion through Twitter for a few weeks now and the discussions are a great resource to learn about BTC. Still have have some fundamental quesitons. Appreciate some education and apologies if it's already been asked.

(1) If I want to pay John 1.00 BTC, do I have to pay transaction fees to miners?

(2) Is there a fixed amount of fees per transaction?

(3) I had 0.01 BTC in instawallet which I transfered to my personal MacBook. The transaction was free. I tried transferring the 0.01 BTC from my MacBook back to Instawallet and the app says "over the limit...would you like to pay ~0.0005 BTC as fees?" Why was it free one way and costs the other way?

[x0Jakeyboy0x]

Please note i do not yet know all when it comes to Bitcoin, but i'll share with you my thoughts.

1)Yes you do have to pay transaction fees on select transactions if you use GUIminer. However, there may be away to avoid this with command line use? I am not 100% sure. The only reason i conclude this is because of the latter part of #2.

2)0.0005 BTC on select transactions as per this version of GUIminer, though i have heard this varies depending on the version.

3)I believe Instawallet paid for this transaction out of there own pocket in order for your money not to be affected. This means that you do have to pay for the other way around though as you noticed.

[nmat]

These fees are driving people crazy. I don't them understand them either. I should read more about bitcoins inner works to understand them and I don't feel like it...

There should be a simple explanation that doesn't include blocks, miners, inputs/outputs, etc. Something like "It's 1%. That's it!" 

[JoelKatz]

(1) If I want to pay John 1.00 BTC, do I have to pay transaction fees to miners?

It depends upon the circumstances. If you received that 1BTC in a single transaction more than a day ago, most likely there will be no transaction fee.

(2) Is there a fixed amount of fees per transaction?

No, it's based upon the 'size' of the transaction. If the transaction has to gather a large number of coins from many other transactions or distribute coins to many different destinations, that will affect the fee.

(3) I had 0.01 BTC in instawallet which I transfered to my personal MacBook. The transaction was free. I tried transferring the 0.01 BTC from my MacBook back to Instawallet and the app says "over the limit...would you like to pay ~0.0005 BTC as fees?" Why was it free one way and costs the other way?

Probably a variety of reasons. Most likely, instawallet was sending you old coins, you were sending new (recently sent) coins. You probably could have sent your transaction with no fees once the coins were a day old.

[x0Jakeyboy0x]

Thank you for the lesson JoelKatz. I suppose the age of the coins is key.

[nmat]

Thank you for the lesson JoelKatz. I suppose the age of the coins is key.

Not only that. As far as I understand, it also depends on the money origin. If you transfer 1BTC that came from 100 0.01BTC transfers you will probably pay a fee regardless of how old those transactions are.

Also, you don't have to pay fees (the 0.0005 value is hardcoded in the current version bitcoin client), but your transactions might not be accepted if you don't pay. It's all relative...

[nightwolf]

Thanks very much for info. guys. Didn't know there was such a thing as old coins. Interesting.

So the larger the transaction, the larger the fees? From a miner's POV, they get a slice of the fees and new BTC are generated simultaneously? Coz I heard somewhere that after reaching about 20-30 Million, no more BTC will be created...

[JoelKatz]

So the larger the transaction, the larger the fees?

Correct, where "large" is defined primarily in terms of the number of inputs (places the transaction gathers coins from) and output (places the transaction transfers coins to).

From a miner's POV, they get a slice of the fees and new BTC are generated simultaneously? Coz I heard somewhere that after reaching about 20-30 Million, no more BTC will be created...

That's correct. Yes, the BTC generated per block will gradually decrease over time. In the future, assuming bitcoin survives that long, miners will mine for only transaction fees. (There are a lot of interesting quirks that will create in the bitcoin system, but none of them appear to be particularly serious.)

[nightwolf]

The above two posts clarify a lot of my understanding, thanks guys.