Recently we have seen Bitcoin's fees increase at a massive rate which was much lower than before. Where previously it used to cost $0.50 to complete a transaction, now it costs $5 or more to complete a transaction. Again, it is often seen that the fee is reduced from 5$ to $0.25. There are two reasons behind this increase.
First, the price of Bitcoin has increased. See, although I'm calculating the fee in dollars here, it's actually a fee, but in the case of Bitcoin, it's calculated with Bitcoin. I mentioned later how it is calculated. If you read, you will understand. Anyway, back to the basics. Suppose, for a transaction, your fee is 0.0001 bitcoin. While Bitcoin costs $20,000, 0.0001 Bitcoin costs $2. When the price of Bitcoin rises to $40,000, but the same fee for Bitcoin, it will be $4.
Second, when Bitcoin's on-chain transactions increase, fees will also increase. To understand this, you must first understand what the block size is. Bitcoin's block size is 1 megabyte or 4 virtual megabytes. The size of the transactions we do is byte. Each block of Bitcoin can hold a maximum of 1 megabyte of data. As such, an average of 144 megabytes of data can be stored in 144 blocks per day. It is not possible to keep more than that. In that case, if there is a transaction like 500 megabytes of data per day, where or how to keep the information. Therefore, miners add to the block the transactions for which the fee is higher and leave the rest. It has no specificity. Exactly the number of transactions that can be added by calculating 1 MB per block will be added. Now, you can't confirm a transaction with a low fee if you want to, only if you are a minor. If you need to confirm a transaction immediately, you need to pay a fee so that my transaction is included in 1 megabyte of data. I mean, you have to compete. The higher the fee, the faster the transaction will be confirmed.
How is Bitcoin's transaction size and fee calculated?
Since Bitcoin's fees are calculated per byte, we first need to know how to understand the total size of a transaction. The transaction size is calculated according to the following formula.
Input * 160 + output * 34 + 10 +/- input
Suppose you have received Bitcoin 5 times at an address or in your wallet. Now you want to send those bitcoins to 2 people. Then your transaction size will be as follows
5 * 160 + 2 * 34 + 10 +/- 5
= 96 +/- 5
= 963 or 963 bytes
Now, if you think that if you pay 1 satoshi for every byte, your transaction will be corrected, then your fee will go = 963 * 1 = 963 satoshi
If you think it will take 2 satoshi per byte, then the fee will be = 963 * 2 = 207 satoshi .
You can see how much it costs seven hundred per byte here - https://jochen-hoenicke.de/queue/#1,2h
If you have any questions about this article or the fee, be sure to comment here.