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Transaction costs are calculated based on the data volume of the transaction and network congestion.
Since a block can only hold 4 MB of data, the number of transactions that can be executed in a block is limited. Therefore, larger transactions require more block data. Therefore, more important transactions are usually charged per byte.
When you send a transaction using a BTC wallet, the wallet usually gives you the option to choose your Bitcoin rate. This fee will be determined in satoshis per unit of data (100,000,000 satoshis in one Bitcoin) consumed by your transaction on the blockchain, abbreviated as sats/vByte. This rate is then multiplied by your transaction size to get the total fee you will pay.
If you want immediate confirmation of your transaction, your optimal rate can vary widely. If you don’t mind waiting, spending 2 sats/vByte will usually get you your transaction confirmed within a day or a week.
Transaction fees also reflect how quickly users want to validate transactions. When a user initiates a transaction, it goes into the mempool (transactions that have not yet been put into the blockchain and stored in volatile memory).
After validation, it is included in the block. Miners choose transactions to verify and include them in blocks. When there is a backlog of pending transactions, it incentivizes miners to process transactions with higher rates first. Most miners target a high ratio of transaction fees to bytes. When network transactions start to decrease, transaction fees will drop.
Bitcoin exchanges that connect buyers and sellers calculate fees in two ways: as a flat fee per transaction or as a percentage of the total transaction volume over the past 30 days. The exchange uses a tiered fee structure, depending on the total dollar volume traded in both cases.
The fee arrangement is designed to encourage traders to trade frequently. As a result, the cost of high-value and high-frequency transactions is reduced accordingly. Fees are usually higher for small, infrequent transactions.
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