It was inevitable. Now that bitcoin is in a bull run and more users are rushing to use the digital currency, bitcoin transaction fees are shooting up again. Lately, the average bitcoin transaction fee has fluctuated between $24 and $31, according to data provider Bitinfocharts.
Higher fees emerge when the blockchain is congested. The blockchain has limited space. Like a traffic jam, the transactions move more slowly when the lanes are filled.
The number of transactions that are waiting in line to be accepted by the network has ballooned significantly over the last couple of months, as the above graph shows.
Related: Biden’s $1.9T Stimulus is Coming. How Will This Impact Crypto Markets?
Users need to pay the Bitcoin network’s miners a fee to get their transactions accepted. Attaching a higher fee to your transaction will likely get it through faster because miners have more incentive to include more profitable transactions in the blocks they mine. These fees also promote a healthier and more secure network because they pay miners and encourage them to participate in the process. These miners are an essential part of Bitcoin’s security behind the scenes.
Luckily, there are ways to cut down on the costs, if you’re patient enough to learn how the Bitcoin blockchain works and the right tools to use.
Option #1: Wait it out
If you have time on your side, there are a couple of options to consider.
Look for a time when the blockchain is less congested. On the weekend, for example, businesses are closed and fewer overall transactions are made. This gives transactions a little more space to clear.
Related: BTC Price Plateau and an Imminent Coinbase IPO: Crypto News Week in Review
Alternatively, try sending your transaction with a smaller fee, then wait until it clears.
Though the average Bitcoin transaction may be around $25, for example, the median is closer to what most users will likely need to pay.
At that rate, if you want to send a transaction right away, the fastest transaction fee is currently around 102 satoshis/byte, according to bitcoinfees.earn. For a median transaction size of 224 bytes, this results in a fee of 22,848 satoshis, or $11. If you don’t mind waiting roughly a half hour, the price would be 83 satoshis/byte, or about $9. The price continues to slide down from there if you’re willing to wait even longer.
Note that for this strategy to work, you’ll need to choose a wallet that allows users to set custom transaction fees. Most do but some don’t, so just make sure the wallet you’re using supports setting custom fees.
Also, note that this strategy can be a little risky. If your fee is too low, the transaction could get stuck temporarily or won’t go through at all.
If you’re worried about this scenario, you can check a site like mempool.space to get a feel for recommended current bitcoin transaction fees. The site shows fee suggestions for low-, medium- or high-priority transactions. The higher-priority fees will push the transactions through faster. But if you aren’t in a rush, you can choose a lower fee and wait for it to be included eventually.
In addition, under the “purging” header, mempool.space shows at what fee price the Bitcoin network will effectively ignore the transaction.
If you’re not sure if you are setting the fee high enough (but don’t want to overpay), and if your wallet offers this option, make your fee “replaceable” by selecting “Replace-By-Fee (RBF).” This will allow you to bump up the amount of the bitcoin fee you set even after sending the transaction if you find it’s taking too long to go through. But, again, only some wallets support the feature, including Blockstream Green and Electrum.
Option #2: Lightning to the rescue
Developers have long anticipated the scenario of rising transaction fees as more users swarm to Bitcoin. That’s one reason they’re building the Lightning Network, a network that sits on top of Bitcoin to allow the network to support more transactions, relieving congestion.
For comparison, while the average on-chain bitcoin transaction fee may cost $25, the average fee on Lightning is a fraction of a cent.
This is the best long-term solution for users planning to make several transactions in the future.
With Lightning, the user does need to pay a fee when initially setting up the channel. But after that, they’ll be able to send as many transactions as they want (assuming they have enough money in their account) with lower fees.
Back to our traffic jam analogy. Users need to get through the initial traffic jam. But with Lightning they will be able to bypass the traffic jam completely by using another alternative lane just for them. And they can do this as many times as they want.
Again, not all wallets support Lightning transactions. In fact, the most popular ones, such as Coinbase and Blockchain.com, don’t. Try looking into a Lightning-specific wallet instead such as Phoenix, Breez and BlueWallet.
At least for now, there are some further caveats. For one, Lightning is still new and not everyone accepts this type of payment. So, whether it is useful to users depends on whether they’re making payments to accounts that accept Lightning – or if they can convince those receiving payments to use it.
Not to mention, Lightning is still experimental. While the technology has matured over the last couple of years, there’s still a possibility users could lose funds. In other words, users shouldn’t put their life savings in it.
Option #3: Use wallets with scaling technology
Back in the realm of on-chain bitcoin transaction fees: SegWit transactions, a change adopted by the Bitcoin community in 2017, can charge fees that are up to 30% cheaper than legacy transactions. In other words, if a legacy transaction costs $15, a SegWit transaction could cost as little as $10.50, in a best-case scenario.
Though SegWit has been around for a while now, not all wallets and exchanges have gotten around to adopting this type of transaction.
On top of SegWit, bech32 addresses add even more improvements and decrease fees a little more as well. Some services have adopted SegWit transactions but not bech32, a format specifically made for SegWit transactions.
SegWit, bech32 – all these different changes are confusing. If you’re just looking to get a discount on fees, take a look at this list or this list of wallets and exchanges. The more checkmarks or green squares an entity has, the higher the discount on fees you’ll likely see when using the app. (Note: These lists might not be fully up to date. Some more recent SegWit adopters, such as BitPay, have not made these lists yet.)
That said, SegWit is not necessarily the default type of transaction in wallets that support it. Users will need to make sure to specifically select the SegWit option when creating their wallet to make sure they can send bitcoin transactions with lower fees.
Related Stories
