What Is a Transaction Fee?
A transaction fee is a payment required when transferring a certain amount of cryptocurrency from one wallet to another.
Transaction fees are not fixed and can vary depending on the current congestion of the blockchain network.
Users who want to prioritize their transactions can pay a higher transaction fee, incentivizing miners to include their transactions in the next block.
A Mechanism for Network Security
Most cryptocurrency exchanges have fixed transaction fees, but users utilizing cryptocurrency wallets often have the ability to adjust the fees themselves.
Transaction fees were initially introduced in Bitcoin to deter malicious or fraudulent activity and prevent the network from becoming overloaded.
Satoshi Nakamoto, the creator of Bitcoin, implemented transaction fees inspired by Adam Back‘s hash system, which was based on the principles of Proof-of-Work.
Other blockchain networks have also implemented transaction fees to maintain the efficiency and productivity of the mining process.
Queueing for Verification
All Bitcoin transactions enter a memory pool (mempool) queue, where miners prioritize which transactions to verify based on their fees.
Transactions with higher fees are typically prioritized by miners, which is why some users choose to increase their fees for more timely or urgent transactions.
In Ethereum, transaction fees are measured in gas, a small fraction of the ETH cryptocurrency.
Transaction fees play a more significant role in Ethereum than Bitcoin due to Ethereum’s advanced features, such as smart contracts and decentralized applications (dApps).