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Transaction Fee

A payment for using the blockchain to transact.

What Is a Transaction Fee?

A transaction fee is paid when a certain amount of cryptocurrency is transferred from one wallet to another. 

 

Transaction fees are flexible in nature and can vary based on how busy the blockchain is. 

 

A user who wants to expedite a transaction can choose to do so by paying a higher transaction fee. 

 

Miners, or people who are paid to verify transactions, will then typically prioritize the transaction. 

 

Most transaction fees are fixed on cryptocurrency exchanges. 

 

However, some users can adjust fees if they are using cryptocurrency wallets. 

 

Transaction fees were initially created to spur malicious or fraudulent activity on Bitcoin’s network. 

 

By levying fees, the hope was that the costs would prevent Bitcoin from becoming overloaded or clogged up. 

 

Bitcoin’s inventor Satoshi Nakamoto introduced transaction fees after being inspired by Adam Back’s hash system. 

 

The hash system was based on the principles of Proof-of-Work. 

 

Other blockchains have enforced similar fees to keep the process of mining intact and productive. 

 

All Bitcoin transactions reach a queue called memory pool, also called mempool. 

 

If the mempool is overloaded, the miners will choose which transactions to verify first. 

 

Cryptocurrency transactions that have higher fees are prioritized first. 

 

Hence, several cryptocurrency users may wish to increase fees if they deem their transaction to be timely or urgent. 

 

Ethereum fees are measured in gas, which can be described as a small fraction of ETH. 

 

Transaction fees play a more prominent role in Ethereum compared with Bitcoin as the former provides more sophisticated features including smart contracts and decentralized apps. 

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