Bitcoin Processing Fees: What Are They?
In last week’s installment of the Coins.ph blog we covered the surge in global demand for Bitcoin, and how this has affected the buy and sell price for Bitcoin (BTC) on Coins.ph. This increased demand shows no sign of abating, so now let’s take a look at another area that this growth impacts: transaction processing fees.
Why is there a processing fee?
Whenever you send Bitcoin (BTC) to another wallet the transaction passes through the blockchain, a global ledger of all BTC transactions. This Bitcoin transaction data is recorded in blocks, which are then linked, or “chained”, together. This is why we use the term blockchain to describe the way in which Bitcoin transactions are recorded. When new Bitcoin transactions are created they are processed by miners into blocks, and added to the blockchain.
When a transaction is created on the blockchain a fee is usually paid in order to have that transaction processed by the Bitcoin miners. This fee acts as an incentive to the miner to include the transaction in the new block that is being created (“mined”).
As the volume of transactions has increased dramatically with the recent surge in BTC price, more and more transactions require processing at the same time. This creates a backlog of transactions waiting for miners to process into blocks, which in turn has led people to begin including higher and higher processing fees (since miners process transactions in order based on fee size). It’s important to remember that the higher the fee paid, the faster the transaction will likely be processed.
Have a look at this average fee increase over the past month:
In the past, Coins.ph offered a no-fee option for outgoing BTC transactions, but this was never actually free – we simply shouldered the processing fee ourselves. Unfortunately, due to the increased fees being paid globally as a result of the surge in demand, we are unable to continue to offer a no-fee option.
Bitcoin transaction fees have been inching higher across the entire world over the past month, and we’ve increased our fees in line with this to ensure that your transactions are picked up by miners for processing. Dropping fees too low would potentially result in transactions being processed extremely slowly, or possibly not at all.
That does it for this week’s issue of the Coins.ph blog, and we hope that this has helped shed some light on the inner workings of Bitcoin processing fees. Keep an eye on this space for future product announcements, as we’re working on a number of new things that we think our customers will love!
Disclaimer: Trading bitcoin and other virtual currencies carries a high level of risk, and may not be suitable for everyone. Read the full BSP advisory to understand the risks of buying, holding, or trading cryptocurrencies.