Bitcoin mining operations have slowed down recently, and more users are rushing to buy digital coins. These changes have led to an inevitable rise in Bitcoin transaction fees.
The average fee has fluctuated over the years, but they’ve been going upwards continuously of late. When the blockchain is congested, higher fees are the result. But that doesn’t mean Bitcoin investors are helpless.
There are several ways to cut down the cost of Bitcoin transaction fees, but they require understanding of how Bitcoin works. Before making a transaction via your opensource Bitcoin wallet, here are several ways you can manage hefty Bitcoin transaction fees.
Bitcoin Transactions: A Closer Look
To understand why Bitcoin is reaching new records in daily payments, it’s essential to understand the anatomy of a transaction first. So, what is a Bitcoin transaction exactly?
Essentially, it’s a transfer of value within a blockchain. One person gives a certain amount of Bitcoin to another. However, for a Bitcoin transaction to be successful, every user has to use a public and a private key that controls the Bitcoins they own.
Every transaction has three main parts, input, output, and amount. Input is the Bitcoin address of user A, and the output is the user B public key or address. The amount is simply how many coins are being transferred.
How fast the transaction will be processed depends on the rate of the fee. Naturally, the higher the rate, the faster the transaction. A single block in the blockchain contains up to 1MB of data, and the space is limited.
So, there’s a strong incentive for them to prioritise transactions with higher fees. When the network is heavily congested due to many new users joining, the fees go up.
What Can Bitcoin Users Do?
One of the reasons why Bitcoin transaction fees have increased is that they are good for the network’s overall health.
When miners are paid well, they’re encouraged to participate in the process, bringing more security to the entire system.
Unfortunately, for the average Bitcoin investor, high transaction fees are an inconvenience. Here are a few ways to manage the issue.
People rarely want to hear these words. But patience has a vital role in cryptocurrency investing. It all depends on whether you choose to wait things out.
If you’re not in a hurry to invest and the transactions fees are ridiculously high, time is your friend. Your goal is to look for a period when the blockchain is much less congested.
Typically, many businesses are closed during the weekends, and in general, there are fewer transactions in the system.
But even if you’re willing to be patient during the same day, the prices may go down. But for that strategy to work, you have to choose an opensource Bitcoin wallet that supports setting a custom transaction fee.
If you’re new to Bitcoin, you can consult with more savvy investors about recommended transaction fees. But there are plenty of designated websites that offer the same perspective.
Move Transactions to the Lightning Network
The rise in transaction fees didn’t come as a surprise to developers and cryptocurrency experts. As people began to swarm towards it, an idea of a separate network that exists above Bitcoin started to evolve.
It’s called the Lightning Network, and it’s still in the experimental stages. The primary purpose of the Lightning Network is to relieve the congestion caused by countless Bitcoin transactions.
By doing so, the rate of fees become significantly lower. Therefore, if you were to pay £20 for a transaction, the Lightning Network would cost you 10 pence. The problem is that not all Bitcoin wallets support Lightning transactions, and in fact, the most popular of them don’t.
If you’re interested in this strategy to avoid paying high transaction fees, it’s best to seek out Bitcoin wallets that specifically offer this service. Still, remember that this technology is in its early stages, and users should be careful about protecting their funds.
Saving Money on Transaction Fees
The high transaction fee rates can be especially problematic when Bitcoin’s price is too volatile, and you’re not sure what to expect each day.
But unless you depend on having the transactions go through instantly, you can probably afford to set a lower fee and wait a little longer.
However, relying on the Lightning Network can be the solution you’re looking for in your everyday trading efforts if expedience is everything.