I started the 100 Days of Bitcoin series to chronicle an experiment where I “invested” about $50 worth of bitcoin in a site offering 10% daily interest. For more info I suggest reading the first post. You can also take a look at the whole series.
Fees Inherent to Bitcoin
The topic of Bitcoin fees is closely tied to the topic of mining. I described Bitcoin Mining on Day 21.
You may recall that every Bitcoin miner (banker in the analogy from Day 21) can choose which transactions to include in a block.
To encourage a miner to include their transaction, the sender can include a voluntary fee. The miner receives the fee or sends it to the address of their choice.
The difficulty of signing a block depends on its size, so miners typically choose what transactions to include based on the fee divided by the size of the transaction.
A simple transfer of bitcoins is between 200 and 300 bytes (think letters). So the fees for them are fairly low.
The fee itself and its amount are both voluntary. The transactions with higher fees get included faster. Bitcoinfees.21.co tracks how long, on average it takes for a transaction to be included in a block.
Here are some examples, based on a 250 byte transaction:
- Ƀ 0.00000000: 90 minutes or more, perhaps never
- Ƀ 0.00000300: Up to 4 hours
- Ƀ 0.00013000: Up to 1 hour
- Ƀ 0.00018000+: In the next block created, usually up to 20 minutes
That doesn’t seem like much, but it adds up. As I am writing the most recent block is 441777 which contains 1104 transactions totaling Ƀ 0.35830617 in fees.
The voluntary fee discussed above is the only fee for transferring Bitcoin from one address to another. However, you may pay other fees for buying or selling Bitcoin.
I am using Bitcoin exchange Coinbase which charges about 1.5% for US customers to exchange between Bitcoin and US Dollars. There are additional fees for using credit cards, PayPal, and wire transfers.
The downside to using an exchange is that it can take up to a week to deposit by electronic check. Credit cards are faster, but there are additional fees to pay the credit card company.
You can help me maintain this site by using this address to open a Coinbase account, at no additional charge to you.
Alternative Sources of Bitcoin
There are less formal ways to buy bitcoin. I will do a whole article on these in the future. For now it is sufficient to say that if you want to obtain bitcoin quickly it will cost you at least 15-20% and potentially much more.
If you want to put in the effort, you can also sell your bitcoin using some of these methods and collect some or all of the fees.