The fee charged is dependent upon the size and weight of the transaction.
Transaction fees are calculated by subtracting the sum of the inputs and the sum of the outputs.
From Initiation to Immutable Confirmation (Part 2)
A simple formula can be used: fee = sum(inputs) – sum(outputs) The fees are used as an incentive for miners to encourage them to include a user transaction in the block the miners are creating.
All transactions end up in the memory pool, from where miners pick up transactions based on their priority to include them in the proposed block.
The calculation of priority is introduced later ; however, from a transaction fee point of view, a transaction with a higher fee will be picked up sooner by the miners.
There are different rules based on which fee is calculated for various types of actions, such as sending transactions, inclusion in blocks, and relaying by nodes.
Fees are not fixed by the Bitcoin protocol and are not mandatory; even a transaction with no fee will be processed in due course but may take a very long time.
This is however no longer practical due to the high volume of transactions and competing investors on the Bitcoin network, therefore it is advisable to provide a fee always.
Why This Matters for Blockchain Technology
The time for transaction confirmation usually ranges from 10 minutes to over 12 hours in some cases.
Transaction time is dependent on transaction fees and network activity.
If the network is very busy then naturally transactions will take longer to process and if you pay a higher fee then your transaction is more likely to be picked by miners first due to additional incentive of the higher fee.
Transaction fee Transaction fees are charged by the miners. The fee charged is dependent upon the size and weight of the transaction. Transaction fees are calculated by subtracting the sum of the inputs and the sum of the outputs. A simple formula can be used: fee = sum(inputs) – sum(outputs) The fees are used as an incentive for miners to encourage them to include a user transaction in the block the miners are creating. All transactions end up in the memory pool, from where miners pick up transactions based on their priority to include them in the proposed block. The calculation of priority is introduced later ; however, from a transaction fee point of view, a transaction with a higher fee will be picked up sooner by the miners. There are different rules based on which fee is calculated for various types of actions, such as sending transactions, inclusion in blocks, and relaying by nodes. Fees are not fixed by the Bitcoin protocol and are not mandatory; even a transaction with no fee will be processed in due course but may take a very long time. This is however no longer practical due to the high volume of transactions and competing investors on the Bitcoin network, therefore it is advisable to provide a fee always. The time for transaction confirmation usually ranges from 10 minutes to over 12 hours in some cases. Transaction time is dependent on transaction fees and network activity. If the network is very busy then naturally transactions will take longer to process and if you pay a higher fee then your transaction is more likely to be picked by miners first due to additional incentive of the higher fee.
Key Points to Remember
- The fee charged is dependent upon the size and weight of the transaction.
- Transaction fees are calculated by subtracting the sum of the inputs and the sum of the outputs.
- A simple formula can be used: fee = sum(inputs) – sum(outputs) The fees are used as an incentive for miners to encourage them to include a user transaction in the block the miners are creating.
- All transactions end up in the memory pool, from where miners pick up transactions based on their priority to include them in the proposed block.
Conclusion
Transaction fee represents one of the many innovative layers that make blockchain technology so powerful and transformative. As distributed systems continue to evolve, a solid understanding of these core concepts becomes increasingly valuable — not just for developers, but for anyone building, investing in, or working alongside blockchain-powered systems.
Whether you are just starting your blockchain journey or deepening existing expertise, mastering these fundamentals gives you the tools to think clearly about decentralized systems and make smarter decisions in this rapidly evolving space.