Topic: Where does sending fee go? (Read 229 times)

The fee goes to the miners. In the mining process that is needed to maintain the health of the network.

Apologies for the heavy tech talk.  I know that’s not the purpose of Beginners & Help.  Some parts of my earlier posts upthread assume a firm grasp of basic Bitcoin concepts, up to (at least) an intermediate level.

For my last post above, I repeatedly edited and rewrote it to better explain without tech jargon or required background knowledge.  Please let me know if it helped you, and if you have questions about it.  It is good you want to take the time to understand.

If you read my last post and then look upthread, you may better understand some parts of my discussion with alia_armelle about weight units, etc.

Thanks again.
I guess I need to take some time to understand your posts.
After I finish reading, going to send thanks post again.

I apologize for the double post.  But I just realized that OP (Original Poster: coinomy.net) had two misconceptions unanswered by others, plus what seems to be an implicit question; and I want to be sure that OP sees this:

From the way you stated your question, I infer that you are wondering about fee estimates reported by your wallet software.  These are usually stated in terms of the fee which is estimated for confirmation within 1 block, 3 blocks, 5 blocks, 10 blocks, 25 blocks, etc.  For reasons I will clear up below, this is only an estimate of the amount of time which will be required for confirmation of a certain fee.  It is not any sort of directly calculated fee or agreement that “this transaction will be confirmed in x blocks”.

Now, Misconception #1:


Note:  The correct word in common use is transaction, not transfer.

Miners do not calculate any fee.  Rather, the creator of each transaction sets the fee for that transaction.  A block has limited available capacity; and if the block is full (= too many transactions to fit), then miners will pick the most profitable combination of transactions which they can fit into a block.

At that point, people are competing with each other to get their transactions into the next block.  Due to competition, fees rise.  They do not rise because of any authority setting a fee:  Rather, users compete with fees to make their transactions more attractive to miners.  Almost always, of course, miners will select the transactions with the highest ratio of fees paid to block capacity used (ratio of BTC/WU).

The fee estimator in your wallet is only estimating how attractive your transaction will look to miners, so that they will choose it.  If you set a high fee, then many miners will want to grab that transaction for inclusion in the next block.  If you set a low fee, then many miners may ignore your transaction—pushing it aside in favour of transactions which offer higher fees.

Unless the fee is ridiculously low, then eventually, as the level of network activity fluctuates, some miners will probably decide that the transaction is worthwhile to include in a block.  Most likely, you don’t just need one miner to choose your transaction:  You need enough miners to choose your transaction to make it probable that one of them will get lucky, and solve the block.

When your wallet software tells you, “fee x for confirmation in y blocks”, that is somewhat misleading.  What it really means is that based on a complicated calculation over recent network activity, your wallet estimates that for a given fee, it will probably be about (say) 10 blocks before a miner who liked your transaction gets lucky.

Misconception #2—some pertinent concepts are explained above:


(This was almost-but-not-quite touched by bitperson.)

There is no “puzzle” for any individual transaction.  As aforesaid, miners choose transactions and fit them together into a block.  There is a “puzzle” of sorts for that block.  The correct term for the “puzzle” is proof-of-work (POW).

The difficulty of work required for the proof-of-work is set based on a target such that on average, it should take 10 minutes for somebody, somewhere to find the correct solution to the proof-of-work.  The actual time will be shorter or longer than that:  Sometimes a miner may get lucky, and find a solution sooner; other times all miners may be unlucky, and it will take longer for anybody to find a solution.  Moreover, global hashrate (the collective power of all miners) fluctuates; this also affects the actual time for solving a block.

If a miner chooses your transaction as one of many transactions in a block, and then finds the correct solution, then the time required for your transaction is the same as for everybody else’s transaction in that block.  The solution (technically, a nonce) is found for the whole block, as a unit which includes your transaction and many others.

Most people haven’t even heard about it.  This plays into much of the “big blocker” anti-Bitcoin FUD.  People still talk about the 1MB blocksize limit, when that has not existed since Segwit activated at Block #481824 on 24 August 2017.


In brief, since this is diverging OT from this thread (and getting way too technical for this forum):  A mempool simply consists of transactions which a node knows about, usually either through receiving the tx from other nodes, or generating the tx itself.  Each node’s mempool tends to be a little bit different from the others, since different transactions reach different nodes at different times (and may not reach some nodes at all) as new transactions work their way through the P2P network.  The one and only purpose of mining is to make everybody agree on a single set of transactions in certain order as “confirmed” transactions—without need for any central authority.  The technical term you want to look up (or I could explain to you later) is “Byzantine fault tolerance”.

Thanks, I totally forgot about the sats/WU thing. Also did not know that each node has its own mempool. Ty!

Excellent answers from Alia!

I wish to add a few more things thereto.  With apologies for the relatively high technical level—it would be infeasible to explain all this at a beginner level in a single post; so I mostly want to drop keywords for people to look up, or ask more about if they’re interested.


I want to highlight that.  This is one of the most common misconceptions amongst new users.  USD and other “fiat currency” calculations simply do not exist in Bitcoin, insofar as Bitcoin itself is concerned.  Some (not all) wallet interfaces quote USD amounts based on exchange rate data.  That is not part of Bitcoin.


Nits/clarifications:  Most relevant are the total fee in BTC for the transaction, and the transaction weight in weight units (WU).  The correct unit ratio is sat/WU.  Since Segwit activated, transactions bytes are weighted using the equation set forth in BIP 141.  Bitcoin no longer has a maximum blocksize; instead, it has a maximum block weight of 4000000 bytes (4MB).  Segwit “witness” bytes have only 25% the weight of other bytes; and “witness” data (mostly signatures and public keys) are some of the largest parts of a typical transaction.  That is why Segwit transactions have much lower fees.

The “fee” is simply an amount of inputs which exceeds the amount in outputs.  This can be spent by the miner as coinbase.

Miners can choose whatever transactions they want to put in a block.  Usually, of course, they would want to select a set of transactions from their mempool⁰ which will provide the most profit.  A precise solution to the problem of transaction selection is actually NP-COMPLETE; but a “good enough” solution can be found quickly and efficiently with a simple knapsack algorithm.

(0. Common misconception alert:  There is no such thing as “the mempool”.  Every node has its own mempool, a mempool.)


I take it that your implication pertains to the transaction size—or as aforesaid, transaction weight.  All other things being equal, a transaction with more inputs will have larger weight than a transaction with fewer inputs.  Thus of course, a big transaction with many inputs will require more fees than a small transaction with few inputs.  Similar considerations apply as for outputs; however, most individual users do not send transactions with multiple outputs other than change.  (Exchanges and many other businesses frequently send transactions with large numbers of outputs.)

A transaction with only one input and one output can be tiny.

Bitcoin fees are not calculated in USD by the algorithm, something more relevant is the sats/byte number, and the number of inputs consolidated into your outgoing transaction. When the network is congested, it becomes a race to get transactions included in blocks - the higher fee you pay, the more likely it is that your transaction is confirmed faster. This led to higher fees, as people kept outbidding each other. A representation of this is the mempool fee graph, which shows the current sats/byte level required to get a fast confirmation. As of now, the network has a low amount of traffic, so a low 5 sat/byte fee should get included within the next 1-3 blocks.

There is no specific puzzle of your transfer. The miner who finds a block gets to include the transactions of their choice, and they typically choose those transactions that pay the highest fees. If you’d like to make some calculations regarding the profitability of mining bitcoins, please see e.g. https://www.cryptocompare.com/mining/calculator/btc.

Thank you for the answer!
Just one more question. When fee was expensive, I paid about 30USD to transfer only 0.5 BTC.
How long does it take to solve the puzzle of my transfer, in other words, to get awarded 30USD?

Miners get your fee. Specifically, the miner that mined the block which included your specific bitcoin transaction. Why do they get this fee, you may ask? Well, in simple terms, they are paying money (in hardware costs, hardware degradation opportunity costs, electricity cost, private costs (heat/noise/space loss)) and are rewarded with BTC. This BTC reward comes in part from transaction fees of users such as yourself. You, too, can earn BTC buy simply running mining software, but this is not profitable and not recommended on a small scale.

Short answer: The fee is awarded to the miner who mined the block that your transaction is in.

Better explanation: https://www.coindesk.com/information/how-bitcoin-mining-works/

When we transfer coins, we pay fee.
Who gets that fee?

Miners calculate for the transfer but who of this miner gets it?