Bitcoin transaction fees: What do miners get paid for?
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Bitcoin transaction fees: What do miners get paid for?


Lots of people using online banking treat free transactions as something obvious and present everywhere. Different institutions offer lots of benefits and free of charge wire transfers are one of them. Because of this, when someone begins to work with cryptocurrencies like Bitcoin, they’re usually disappointed that they have to pay for every action they perform. The main reason for fees existence is that the whole network is based on complex cryptographical functions forcing computers to work incredibly hard, which costs a lot. Let’s have a closer look at it.

Where is cryptography used in Bitcoin?

We already mentioned in this: article, security of the whole blockchain in ensured by storing all the transactions info in sealed blocks

The sealing mechanism itself is quite complicated, so we won't go into technicalities here. In short, it consists in the fact that we take our block and modify it using so-called hash function. There are a lot of them but each has 3 basic common features:

  • the result of their action cannot be predicted

  • when you insert a given file into them they will always give the same result

  • having the result, you cannot find out which file it was created from

Schemes of these functions are publicly available and if someone breaks them describing how to get the input file from the result, fame and glory await him, so I invite you to try.

How Bitcoin mining works?

Keeping that in mind, we take transactions block and put it as an input of hash function. We also need to add a secret ingredient: a key. Having those 2 things as initial values, we check what's the output of the function we used. The thing is, we aim to get a specific value, let's say 123. Since we cannot predict what's the result of the hash function and reverse way is impossible as well, the only thing we have is... trial and error method.

Obviously, no human can do it effectively so we need a computational power. A lot of it. Actually there's no such thing as too much processing capabilities. Professional mines are located in huge warehouses and consist of hundreds of CPU's connected to each other, working 24 hours a day, 7 days a week, looking for a number that makes the hash function give us what we want.

Why there are fees on crypto network?

Of course, those machines mentioned above need incredible amounts of power so nobody's going to maintain them for free. That's why transactions fees exist. They are a form of recompense for cost the miners had to cover. For the money they receive, they pay for electric energy, maintenance works, new hardware and IT specialists work.

Will Bitcoin fees be lowered?

We hope so. Since the amount of money you need to pay for your transaction depends on market demand for computational power, the best way to avoid unnecessary cost is to lower the need of miners services. There is a neat solution currently under development and you can read about it here.

The miners are the spine of crypto networks

They make sure everything is secure and your transaction will be executed properly. There is no need to complain about the current fees – few years back they could reach a level of $20! Nowadays they are much lower.

If, after reading this, you still think that conventional banks are better with their free transfers, keep in mind that you’re not really paying miners for your transactions – you’re paying them for the freedom of controlling your assets.