During this last weeks, transaction fees and validation time have pointed out as being a significant issue for bitcoin future.
That's quite logic because one of the leading Bitcoin's value proposition is the ability to send money within minutes anywhere in the world.
Bitcoin has many other inherent advantages, but we will focus on this one for this article.
Blockchain technology is quite sophisticated, that's why there is a significant misunderstanding about how a transaction works.
The most counter-intuitive fact about transaction fees is that they are not proportional to the amount of the transaction.
The argument which is used most of the time to criticize Bitcoin network congestion is the fact that to make a micropayment; we need to pay more than the amount we want to spend.
It's quite understandable, however to make your personal judgment, it's interesting to get the full framework.
Indeed, miners are the people who own and maintain the code to validate and secure transactions occurring on the blockchain.
They need a computer and a specific program, with these resources they will compete with other miners by solving complicated mathematical problems to get the privilege to add blocks of transactions to Bitcoins's blockchain, which is how transactions are confirmed.
This is what we called the "proof of work" concept; it requires money and energy consumption, miners are incentivized by financial reward, that's the key to keep the blockchain secure.
If the miner adds the block successfully to the blockchain, he compensated in two ways :
1.With the Bitcoin algorithm, it allows new bitcoin issuance dedicated to miners.
At this time, the issuance rate is 12,5 BTC per block; this amount is divided by two every 4 years, which will make the mining process harder over time.
2.With the transaction fees, each transaction can give an extra fee to the miner to validate the transaction faster.
This means that to get your transaction treated quickly, you will have to outbid other users.
The difficulty of the work does not depend on the number of transactions, that’s the reason why miners want to add a maximum of transactions into each block to get the most fees as possible.
The principal constraint is the size of each block that set a limit on the number of transaction that can be added.
Consequently if a miner wants to maximize his income, he needs to add as many transactions as possible considering the size of each.
That’s why a miner will always look into to this ratio : Fee/size of the transaction.
This indicator is mostly expressed in Satoshi per Bytes.
At the time, I write this post the fastest and cheapest transaction fee is currently 470 satoshis/byte, because the average transaction size is 226 bytes a transaction fee could cost: 470×226 = 107,576 satoshi
At the actual bitcoin price, it represents more than 18$….
#How to optimize your fees?
##First option: Avoid small amounts
As we have seen, fees do not depend on the amount of the transaction, so the more the amount is significant, the more the fees will be proportionally low.
For 100$ of BTC, 18$ represents 18%
For 1000$ of BTC, 18$ represents 1,8%
For 10000$ of BTC, 18$ represents 0,18%
##Second option: Anticipate your transactions
Miners always check the ratio Sat /Bytes, the more this ratio is consequent, the more they will try to add your transaction to the next block.
If your price is too high, you will spend money for nothing; if it’s too low, you may wait for days.
On Bitcoinfees.info, we can see that by waiting for 3 or 6 blocks we can reduce fees, by an average rate of 20%.
#My personal opinion :
In the current situation, Bitcoin network isn't adapted to micropayments, because of the network congestion but we need to take into account that the same date last year the daily transactional volume was approximatively 469 million dollars and today it's more than 18 billion dollars.
Nobody was expecting such an increase within a single year; Bitcoin core team is working on the implementation of the lightning network to solve the micropayments issue.
We need to be patient, moreover implementing such a solution in a running ecosystem is a lot of responsibility, let's wait and it's not like the system was hacked!! 😅
This is just my personal opinion; I fully encourage you to do your own research.