Exercise 18: Bitcoin fees—what you pay, and why

Now’s a good time to learn more about bitcoin fees. Transaction fees, of course, directly affect how much you need to pay to process your bitcoin transactions.

This is a good time to remember that we’re paying fees all the time, to process our transactions. For instance, when you use a regular credit card at a grocery store, you’re usually paying around 2 to 5% in fees. We think that it’s the merchant who’s paying the fees, but in the end, it all comes from the customers.

The good thing about bitcoin fees is that unlike credit card fees, it’s not a percentage of the transaction amount. Instead, it’s based on how much digital space the transaction would take in a block. So, you could potentially transfer huge amounts of bitcoin for a tiny fee.

The metric for the transaction fee in bitcoin is sats/vByte, or sat/vB. A low transaction fee rate would be 1 or 2 sats/vByte. Occasionally, transaction fees can go up very high, but transaction fees are low now (early 2025).

The front page of the website https://mempool.space has good information on what the current fee rates are. It’s divided up into No priority, Low Priority, Medium Priority, and High priority. The High priority ones will usually make it into the next block.

Mempool.space also has great historical information on fees. To access it, go to https://mempool.space/ and then click the white Graph icon at the top, then the blue Mining dropdown on the left, and choose Block Fee Rates. Or you can go directly to https://mempool.space/graphs/mining/block-fee-rates.

Do some exploration on the Block Fee Rates page, using the time ranges at the top right (24h, 3D, 1W, etc.), and the bar sliders on the bottom, to learn more about bitcoin fees. Answer the following questions.

1.     In the past 24 hours, at around what time were the highest fees paid? How about the lowest?

2.     For the past month, when were the lowest fees paid?

3.     When were some notable spikes in bitcoin transaction fees, looking at all of the historical data you have available?

Sometimes it’s hard to see the overall patterns because of seemingly random spikes in the fees. Often there’s a spike when there’s a lot of interest in bitcoin and the price is appreciating. Another cause may be NFTs and Ordinals (see below for more info), which are digital items that can cause congestion on the bitcoin blockchain.

In some of the following exercises, you’ll experiment with different fee rates.

Learn more: Bitcoin transactions that are not on the blockchain

It’s important to know that not all transactions have to be logged directly on the bitcoin blockchain. There are other options for sending and receiving bitcoin, on what’s called Layer 2. These transactions are not directly or immediately on the blockchain.

The most popular Layer 2 is the Lightning network. Most smaller bitcoin transactions happen on the Lightning network. There’s more information about Lightning in the Resources chapter at the end of this book.

Learn more: NFTs, Ordinals, and Runes

When Bitcoin transaction fees spike up, it’s usually from either increased interest in bitcoin, or increased interest in NFTs, Ordinals, and Runes.

NFTs, Ordinals, and Runes are digital items that live on the bitcoin blockchain. Some fans like to buy and trade them—the hope is that like trading cards, they may appreciate in value.

These items take up much more space on the block than a regular transaction, so they make regular transactions expensive. Trading in NFTs, Ordinals, and Runes tends to come in waves. You can see (on mempool.space) a huge spike in bitcoin transaction fees in late 2023 and early 2024. This was caused by trading in NFTs, Ordinals, and Runes.

Learn more: Paying the lowest fees possible

For practical purposes, here’s what you need to remember about bitcoin transaction fees:

·       In the past few years (2024-2025), bitcoin fees have been generally low. They probably won’t cause you much concern.

·       In general, for low transaction fees, do them in the morning on weekends. There’s not as many transactions happening, so competition is lower. Sunday morning in the Eastern Standard time zone can be particularly cheap—you can check historical fees and see that fees at this time are usually low.

·       If you don’t want your transaction to go through immediately, you don’t have to pay the recommended fee amount. In periods of high transaction fees, I’ve input a lower fee, and the transaction has still gone through. It will just take longer, I’ve waited anywhere from an hour to a week.
But remember, if a transaction needs to happen quickly, you need to pay the fee to get it included in the next block.

·       If you have a stuck transaction because you set the transaction fee too low, there are some options. One of them is what’s called a RBF (Replace By Fee), another is CPFP (Child Pays For Parent). We won’t get into the details here, but do a search online for either term, along with the keyword Sparrow, and you’ll find some information.
Warning: I just did the same search that I mentioned above, and the fake, look-alike scam site came up in the search results (sparrowwallet.net). Always be careful where you’re clicking!

Well done!

You’ve completed the advanced beginner exercises, and have developed a good understanding of some important concepts in bitcoin—and of course practical skills.

Are you enjoying this book so far?  I’d love for you to share your thoughts and post a quick review on Amazon!

If you have feedback, I’d like to hear from you. Please email me at feedback@BitcoinHandsOn.com.