Why Bitcoin Transaction Fee increases Over Bitcoin Price Increase?

[Bila0]

This is very very confusing because I knew there was a time when BTC transaction fee was very less in 2017. And we all were confident about this. I knew times when BTC fee was only 5000 Satoshi.
Now BTC price Is also I creased so many times and also now it is about 50,000 Satoshi. And it is very confusing. It may lead to newbies those can drop BTC and to accept other coins too.

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[ranochigo]

The fee market is determined by the supply and demand. You should look at the fee rates instead of the absolute fees, as the fees are affected by the size of your transaction.

If you're talking about the fee rates in Bitcoin, then the fee has mostly been unchanged. The mempool is quite empty right now and you should get a confirmation within a reasonable timeframe with 1 sat/vbyte and it is basically the same as when Bitcoin was normal.

[kanayaTabitha]

This is very very confusing because I knew there was a time when BTC transaction fee was very less in 2017. And we all were confident about this. I knew times when BTC fee was only 5000 Satoshi.
Now BTC price Is also I creased so many times and also now it is about 50,000 Satoshi. And it is very confusing. It may lead to newbies those can drop BTC and to accept other coins too.

It's probably because the network load at that time is not crowd as right now, the network load is influence by how many people doing transaction at that time and how much the volume of bitcoins being traded.
I think it's okay for bitcoin because nowdays people are buying bitcoin are purposing to invest not as transaction currency, usually people are sending balance between wallets using cheap fee coins but it won't make the price of bitcoin drops because of that. People knows bitcoin is the most strong fundamental cryptocurrency right now and it's the best coin to hold. All crypto investors must be hold bitcoin as part of their investment.

[pooya87]

transaction fee was very less in 2017.

Actually transaction fees during most of 2017 were at their record high and definitely a lot higher than today.

I knew times when BTC fee was only 5000 Satoshi.

Bitcoin transaction fees aren't a fixed amount in satoshi, they are defined based on size using units such as satoshi/(v)byte.

Now BTC price Is also I creased so many times and also now it is about 50,000 Satoshi.

It sounds to me like you are looking at withdrawal fee of some centralized service such as an exchange. Those things do not change based on price or network activity. They are set to a fixed amount by the owners to cover their cost and make a profit.
In any case fees these days for a normal transaction that has 1 input and 2 outputs shouldn't exceed 200 satoshi.

[nc50lc]

-snip- I knew times when BTC fee was only 5000 Satoshi.
Now BTC price Is also I creased so many times and also now it is about 50,000 Satoshi.

This looks like Binance, their current Bitcoin withdrawal fee is flat 0.0005BTC (previously "dynamic", based on the price of Bitcoin)
During the 2017 bubble, Bitcoin price was excessively higher than it was months ago so if the withdrawal fee is "dynamic", it will be lower, so that must be the reason why you've seen 5000satoshi withdrawal fee.
(not sure if Binance set it that low though considering the mining fee at that time).

That also applies to other custodial wallets/exchange with dynamic withdrawal fee, not in "non-custodial" Bitcoin wallets.

But in Bitcoin, it's based from the network's condition and size of the transaction (in virtual bytes).
The average 'fee rate' (sat/vB) might increase if there are too many unconfirmed transactions competing in mempools;
the 'total fee' will increase based from the 'fee rate' and if the transaction itself is big in size mostly because of having too many inputs.

[Pmalek]

When the value of Bitcoin increases or decreases significantly, you will either see greater interest for the coin or panic on the market. The resulting effect on the network and the mempool is similar. It can't handle the increased load. There is greater competition to get inside a block and because of that people are willing to or they are forced to pay higher fees for a quicker transaction confirmation.

Imagine a passageway. When everything is normal, you can have 3 or 4 people walking through it side by side. That's when the mempools are empty or relatively empty.
Now imagine there is a concert in town and that passageway leads directly to the venue. Instead of 3-4 people, the road is now facing 10, 20, 50 or more people trying to squeeze through. Naturally, that will lead to a slower traffic and a struggle of who gets through first. Include a priority passage fee and you have yourself a full mempool where people are fighting and competing against each other of who gets through first.

[Lucius]

It sounds to me like you are looking at withdrawal fee of some centralized service such as an exchange. Those things do not change based on price or network activity. They are set to a fixed amount by the owners to cover their cost and make a profit.
In any case fees these days for a normal transaction that has 1 input and 2 outputs shouldn't exceed 200 satoshi.

We all know that no one provides such services for free, but it is quite clear to me that the average user is terribly confused when he sees that he has to pay 50 000 satoshis to withdraw his BTC from an exchange, although there are cases where the fee is a fixed 120 000 satoshi. I ask if it is moral to charge someone 250 times more than the regular online fee, regardless of the fact that the complete service is included - but every time you do a withdrawal you pay the same price again.

In one discussion on the subject, I think we concluded that centralized exchanges in this way actually want to demotivate users to withdraw their funds in addition to earnings - and given the growing awareness of users about the actual ownership of digital assets, I would not be surprised if the demotivation in the form of fees become even more pronounced in the future.

[stompix]

This looks like Binance, their current Bitcoin withdrawal fee is flat 0.0005BTC (previously "dynamic", based on the price of Bitcoin)
During the 2017 bubble, Bitcoin price was excessively higher than it was months ago so if the withdrawal fee is "dynamic", it will be lower, so that must be the reason why you've seen 5000satoshi withdrawal fee.

The fee was actually higher at the start of 2017
https://www.binance.com/en/support/announcement/115000722011

After optimizing our processes, Binance has adjusted BTC withdraw fee from 0.002 to 0.0005 BTC. For details, please check Fee Structure on Binance.

I don't think that there is any exchange who despite the price going up at least 3 ties if we consider the ATH would have also increased the fees x10.

In one discussion on the subject, I think we concluded that centralized exchanges in this way actually want to demotivate users to withdraw their funds in addition to earnings - and given the growing awareness of users about the actual ownership of digital assets, I would not be surprised if the demotivation in the form of fees become even more pronounced in the future.

Or they want to promote their own tokens and chains, in Binance's case as the fee for their so-called pegged token is 0.000004, 125 times cheaper.

[Kakmakr]

I see it this way.... When the Bitcoin price is higher, it gets a lot of attention from the speculators that are coming back to Bitcoin as a result of the price hype in the media. So more transactions = a more congested Mempool = higher transaction fees.

The higher price is thus a trigger for more demand and more transactions (deposits and withdrawals) on exchanges. (People taking profit = withdrawal on-chain from Exchanges and wallets = increased transactions)  

[Pmalek]

I ask if it is moral to charge someone 250 times more than the regular online fee

This is how I look at it. Morality has nothing to do with it. It's business and it's about generating as much profit as possible. The fees are high, but people still use them. A lot. From their point of view, there is no reason to make any changes. If they noticed that they lost 30% of their customers to too high fees, believe me they would change. They would even introduce airdrops, moneyback offers, and other promotions to get back what they lost.

The fee was actually higher at the start of 2017
https://www.binance.com/en/support/announcement/115000722011

After optimizing our processes, Binance has adjusted BTC withdraw fee from 0.002 to 0.0005 BTC. For details, please check Fee Structure on Binance.

Binance thinks only in USD terms. That announcement dates back to 20 July 2017. A source I found says Bitcoin was at $2.282 on that day. If math didn't fail me, those 0.002 BTC are equivalent to $4.50. Those 0.0005 BTC are today worth almost $22. So, they are pocketing much more now than what they did in the past.

[Charles-Tim]

Actually transaction fees during most of 2017 were at their record high and definitely a lot higher than today.

I do not know about this because I wasn't even using bitcoin at the time, but I have checked the price history of bitcoin before, 2017 was very bullish all through which is a reflection of what you are commenting to be true because the fee will be high when the mempool is very congested while bull market is a reflection of mempool congestion.

Bitcoin transaction fees aren't a fixed amount in satoshi, they are defined based on size using units such as satoshi/(v)byte.

Exactly, definitely the OP is commenting basically about custodial exchanges like Binance that have very high withdrawal fee in which is a way custodial exchanges are making profit from people because bitcoin fee is not high to such entent and depending on sat/vbyte. The mempool is not even congested recently while even the 0.00005 the OP mentioned will still get transaction confirmed depending on the mempool while the sat/vbyte is still what to be considered to determine the fee.

This is how I look at it. Morality has nothing to do with it. It's business and it's about generating as much profit as possible. The fees are high, but people still use them.

That is true, it is business, but many people always make use of exchange fee to think that Bitcoin fee is actually high, which means the fee is not too high to what they are thinking about bitcoin fee, only few people that make use of noncustododial wallet and mempool estimation that are taking advantage of bitcoin fee which is not as high as many exchange users thought.

Few exchanges still have higher fee than binance while many if not most exchanges charges just like Binance charges, that is why Binance will not have to worry about anything.

[nc50lc]

-snip-

The fee was actually higher at the start of 2017
https://www.binance.com/en/support/announcement/115000722011

Yeah, I've checked the archived pages of their fee structure and it even increased to 0.001 from 0.0005 during the 2017 (year end) crypto market crash.
http://web.archive.org/web/20171230062232/https://support.binance.com/hc/en-us/articles/115000429332
Was talking about during the crash, not the start of 2017 BTW.

So then, he must be talking about other exchange or just rounding-up his wallet's average absolute fee.

[tranthidung]

This is very very confusing because I knew there was a time when BTC transaction fee was very less in 2017. And we all were confident about this. I knew times when BTC fee was only 5000 Satoshi.
Now BTC price Is also I creased so many times and also now it is about 50,000 Satoshi. And it is very confusing. It may lead to newbies those can drop BTC and to accept other coins too.

Your statement is not true. Look at the chart. You can see mempool is empty since July and it is far lower than in late of 2017 and early of 2018.

• All time chart: https://jochen-hoenicke.de/queue/#BTC%20(default%20mempool),all,weight
• In 2021, fee rates are high from Jan to May

Transaction fee will be depended on three factors

• Fee rate: satoshi/ virtual byte
• Transaction size
• Mempool status: you have to look at mempool and choose fee rate
• You can not control mempool status but you can choose cheap fee rate and use Segwit

You can check mempool and consider the appropriate fee rate for your transaction.

• 24-hr chart: https://jochen-hoenicke.de/queue/#BTC%20(default%20mempool),24h,weight
• https://mempool.space/
• If you are newbie, use the second one. If you want to get more details, use the first one. Hovering mouse on the chart, at specific point on the chart, you will see total size in mempool and total size for each fee rate (from tip of mempool to that specific fee rate).

By the way, try to use Segwit address because Segwit transaction will help you to save transaction fee. Additionally, try to consolidate your small inputs (if you have them), when mempool is empty that means you can use fee rate at 1 to 2 satoshi/ vbyte.

• Plot your transaction in the mempool
• Make sure to avoid wasting BTC for too high fees – step by step guide (Electrum)
• Mempool empty! Use this opportunity to Consolidate your small inputs!

[pooya87]

I do not know about this because I wasn't even using bitcoin at the time, but I have checked the price history of bitcoin before, 2017 was very bullish all through which is a reflection of what you are commenting to be true because the fee will be high when the mempool is very congested while bull market is a reflection of mempool congestion.

The high fees during 2017 was only partially because of the bull run, and I dare say it was the smallest contributor. The biggest reason why fees were so high in 2017 was because of the spam attack sponsored by certain groups including the shitcoin pumpers (Dash and ETH specifically).
You can always check the blockchain using a block explorer.
During 2017 average of highest fees per block was about 10.5BTC (ignoring the extremely high fee of 3 blocks: 79.66, 51.04 and 30.72 BTC) with 990 kb blocks.
https://blockchair.com/bitcoin/blocks?s=fee_total(desc)&q=time(2017-01-01%2008:39:09..2017-12-01%2008:39:09)#f=id,time,fee_total,size
In comparison the average high fee per block we had in past 2 years is 3.5BTC with 1300 kb blocks.
https://blockchair.com/bitcoin/blocks?s=fee_total(desc)&q=time(2020-01-01%2008:43:37..2021-09-28%2008:43:37)#f=id,time,fee_total,size

This is while last full block we saw (702,520) had a total of 0.09BTC fee and size of 1.74 MB.

[tranthidung]

This looks like Binance, their current Bitcoin withdrawal fee is flat 0.0005BTC (previously "dynamic", based on the price of Bitcoin)
During the 2017 bubble, Bitcoin price was excessively higher than it was months ago so if the withdrawal fee is "dynamic", it will be lower, so that must be the reason why you've seen 5000satoshi withdrawal fee.

It was still expensive in Jan. 2021

• Old story. Exchanges get profits from users' withdrawal fees.
  
  • They can defend that they charge those fees because in order to run a service, they have to do multiple things. However, I disagree with this pleading
  • Doing this, they charge multiple fees on users: from trading fee to withdrawal, wallet maintenance, etc.
• They charged same withdrawal fee at 0.0005 BTC per withdrawal in Jan. 2021
• It is still the same currently: https://www.binance.com/en/fee/cryptoFee

[20kevin20]

When the price increases, there are many who buy in the hype. That makes the mempool clog up and therefore the transaction fees increase since most of them want quick confirmations. What happens is quite natural then however: as long as people consider the fees are too high, they stop transacting and fees decrease. If you feel like .10c is too low and you afford to pay .12c, you will help with the increase of fees.

It's just a natural order in a decentralized world, although I would argue that the rich have a huge advantage over us since they will always afford to pay larger amounts for transactions.

[Lucius]

Or they want to promote their own tokens and chains, in Binance's case as the fee for their so-called pegged token is 0.000004, 125 times cheaper.

I completely forgot about it, and now I remembered all those newbie questions about how they try to confuse them on the withdraw page to just choose a cheaper option - of course, they are interested in having as many people invest in their token as possible.

This is how I look at it. Morality has nothing to do with it. It's business and it's about generating as much profit as possible. The fees are high, but people still use them. A lot. From their point of view, there is no reason to make any changes. If they noticed that they lost 30% of their customers to too high fees, believe me they would change. They would even introduce airdrops, moneyback offers, and other promotions to get back what they lost.

I understand that this is cruel capitalism where everyone takes advantage of the other to the extreme, but I still think it is very unfair to have such a large withdrawal fee for BTC. However, users may start using other crypto exchanges now that Binance has KYC for all users - which was not the case until recently.

[KingsDen]

The transaction fee is a reward to miners as I was told. This means it will not be regulated. As Bitcoin adoption increases with time, so also the transaction fee. Especially when it becomes difficult to mine a block and get it's reward. How about when there will be no block to be mined again. It's hi time we understood that bitcoin transaction fee will keep going high as Bitcoin adoption increases in as much as it still uses PoW design.
That is why Lightening Network and the use of Segwit (Segregated Witness) addresses should be encouraged in order to battle the BTC high transaction fee.

[Charles-Tim]

It was still expensive in Jan. 2021

Ever since I knew Binance since 2020 even before the bull run, the fee was static and it was 0.0005 BTC, also not change up till now, but probably the dynamic fee would be sometime in the past, maybe when Binance was created.

What happens is quite natural then however: as long as people consider the fees are too high, they stop transacting and fees decrease. If you feel like .10c is too low and you afford to pay .12c, you will help with the increase of fees.

OP is typically relating the high fee to exchange withdrawal fee which is not the right estimate of bitcoin transaction fee because exchanges charges more than usual.

Also, what I have noticed to decongest the mempool more is the bear market when the price of bitcoin decreased, some people will sell their bitcoin at the time and bitcoin transaction will be reduced unlike the bull market that transaction will increase and the mempool will be congested just as you commented.

I understand that this is cruel capitalism where everyone takes advantage of the other to the extreme, but I still think it is very unfair to have such a large withdrawal fee for BTC.

Highly unfair to me as well, but some people will not mind but prefer excellent service. Some people will also be discouraged to transfer their bitcoin to noncustodial wallet all because of the high fee while exchange users have no full control, also there is a threat of exchange hack.

However, users may start using other crypto exchanges now that Binance has KYC for all users - which was not the case until recently.

It will be good for people to go for decentralizedl exchange, but the decentralized exchange volume is lower which might discourage some people. Also if we notice something, the people that are now using bitcoin nowadays are not that privacy concerned while many of them now do not even know the difference between wallet and exchanges. Binance had the intention to gain as much as possible customers before making stringent terms of service concerning kyc, and now facing restriction threat from many countries, but very possible few people might not make use of Binance again, but the exchange will later likely have more growth as most people are ignorant.

That is why Lightening Network and the use of Segwit (Segregated Witness) addresses should be encouraged in order to battle the BTC high transaction fee.

The upcoming P2TR will also help in reducing bitcoin transaction fee, especially transactions of multisig, transactions involving many inputs will be lower if also compared. Lightning network is one of the ways bitcoin can be transferred to other users with very low fee and fastest transaction, it will be good if more/most bitcoin wallets and exchanges begin to support it.

[KingsDen]

OP is typically relating the high fee to exchange withdrawal fee which is not the right estimate of bitcoin transaction fee because exchanges charges more than usual.

Also, what I have noticed to decongest the mempool more is the bear market when the price of bitcoin decreased, some people will sell their bitcoin at the time and bitcoin transaction will be reduced unlike the bull market that transaction will increase and the mempool will be congested just as you commented.

In the first paragraph, it is worthy to note as you stated that the custodian exchanges fees tends to be higher than non-custodian use because they are in business. Instead of them to have two separate fees(transaction fee and service fee), they incorporate them in one and call it transaction fee.

In your second paragraph you said of decongestion of the mempool because of bear market. I have a question; either people are buying or selling bitcoin, there is transaction in both cases. That is to say, if people are rushing to sell off their Btc during a bear market, same congestion that is experienced during a bull market should also happen. Or am I missing anything?