Transaction Fee
Payment included in cryptocurrency transactions to incentivize miners or validators to process and include the transaction in a block.
A transaction fee is a payment included in cryptocurrency transactions that incentivizes miners or validators to process and include the transaction in a block. This fee represents compensation for the computational resources required to validate transactions and the block space they occupy.
"When sending Bitcoin, Sarah included a transaction fee of 0.0001 BTC to ensure miners would prioritize adding her transaction to the next block rather than leaving it waiting in the mempool."
On UTXO chains, fees are usually priced by transaction size (sat/byte or sat/vB). On EVM chains, users pay gas for computation and storage; total cost equals gas used times gas price (with EIP-1559 fields for max and priority fees).
"A 200-byte BTC transaction paying 25 sat/vB costs ~5,000 sats; an ERC-20 transfer might use 50,000 gas at 15 gwei, costing 0.00075 ETH."
Transaction fees are determined by various factors, with mechanisms varying across different blockchains:
Network Congestion: Fees increase during periods of high transaction volume Transaction Size/Complexity: Larger or more complex transactions require more resources to process Transaction Priority: Higher fees generally result in faster confirmation times Market Dynamics: Users compete in a fee market for limited block space Protocol Rules: Some blockchains have minimum fees or special fee structures
"During Bitcoin's peak congestion in December 2017, average transaction fees reached over $50 as users competed for limited block space, while during quieter periods in 2020, fees were often below $1."
Different blockchain networks have unique fee structures and terminology:
Bitcoin: Fees are based on transaction size in bytes and typically measured in satoshis per byte (sat/B) Ethereum: Uses "gas" to measure computational complexity, with fees calculated as gas used × gas price (in Gwei) Bitcoin Cash: Designed for consistently low fees through larger blocks, typically below $0.01 Solana: Uses a deterministic fee model with extremely low costs per transaction Binance Smart Chain: Uses a gas model similar to Ethereum but with lower base costs
"On Ethereum, a simple token transfer might cost 21,000 gas, while complex smart contract interactions like swapping tokens on Uniswap could use over 200,000 gas, resulting in proportionally higher fees."
Users can optimize transaction fees through several strategies:
Timing: Conducting transactions during periods of low network congestion Fee Estimation Tools: Using calculators to determine appropriate fees Replace-By-Fee (RBF): On supporting networks, increasing fees if a transaction is stuck Batching: Combining multiple payments into a single transaction Layer 2 Solutions: Using sidechains or payment channels for lower-cost transactions Alternative Networks: Choosing blockchains with lower base fees for non-urgent transactions
"By batching weekly payouts to 50 employees into a single Bitcoin transaction rather than sending 50 separate transactions, the company reduced their total fee costs by approximately 80%."
Related Terms
Transaction
→The fundamental unit of data exchange on a blockchain, representing transfers of cryptocurrency or executions of smart contracts.
Mining
→The process by which new coins or tokens are minted and transactions are confirmed on a blockchain through computational work.
Mempool
→A temporary storage space in a node for pending transactions that have not yet been included in a confirmed block.
Gas
→The unit of computational work on EVM chains; users pay gas in the native token to execute operations in smart contracts.
Fee Rate
→A fee expressed per unit of transaction size (e.g., satoshis per vbyte) used to prioritize inclusion in blocks.
Market Order
→A type of order to buy or sell a security at the best available price in the current market.
All terms and definitions may update as the Cryptionary improves.
