A blockchain fee is collected on every cryptocurrency transaction. The reason behind it is to ensure transfers arrive on time. It is one of the most vital tools to speed up the process. After the fee is collected, the transaction is sent to the network to process it. A high rate is charged for heavy transactions, and it is given priority over low-cost transactions. The blockchain fee varies with each transaction. However, a recent study showed that the average bitcoin transaction is $23, which is quite a lot.
The fee goes to the miner who verifies the transaction as a reward. They invest energy and time to ensure the authenticity of a transaction, and any fee associated with it goes to them. There has been a surge in the use of cryptocurrency that has led to more traders seeking transaction approval than ever. Blockchain, however, has limited space.
Imagine a traffic jam, each car wanting to go ahead of each other but there is congested space, and as a result the traffic moves slowly. The same is the case with blockchain. With tons of transactions coming through, the system gets jammed. As a result, transactions have to await their approval.
The only way you can get out of the transaction jam quickly is to increase the transaction fee. It will encourage the miner to authenticate your transaction first as it offers more incentives than the other. This way, you can buy your way out of the traffic jam while others may have to wait longer.
How to know the blockchain fee?
As stated before, the price depends on several factors like transaction size in kilobytes. There are numerous complex ways to determine the fee, but fortunately, your crypto wallet comes with a built-in fee calculator. It will show you the estimated rate before the transaction to get you an idea.
But that is not the story with every wallet. Some wallets and exchanges leave it to the trader to calculate the fee. If the situation occurs, you can use tools like Estimatefee.com that can calculate the cost in terms of U.S dollar.
Ways to reduce transaction fee
One way you can avoid a high fee is to wait out the storm. During the peak hours, the system gets congested, but gradually the jam withers. It is worth noting that the more you wait, the price comes down, and when it does, you can bid a low amount.
Using lightening-supported wallets such as Pheonix and Bluewallet might be the right solution for you. Lightning network reduces the congestion as it provides an alternative way for users to bypass the traffic.
The transaction fee costs less than a cent compared to the $23 average of BTC.
SegWit transactions can cost less than 30% compared to legacy transactions. SegWit is not the default type of transaction in the wallets, so make sure to change that before setting up the wallet.
Transaction fee is unavoidable as miner intervention is necessary to approve it. Banks are not involved in the process due to the decentralized nature of cryptocurrency. Remember, customizing your proposed fee to a low value can cause it to be rejected or delayed.