I receive BTC mining payouts; why are the fees so high?

The Bitcoin network calculates fees based on the number of transactions and the size in kilobytes of each transaction. The size of a transaction depends on the number of inputs that hold funds. The more inputs you have, the more expensive the transaction. Please note that the fees are not based on the amount of Bitcoin involved in a transaction, as many users are confused about this.

One of the easiest ways to think about this is with change and dollars. One dollar is the same as 100 pennies. However, it requires more work to count 100 pennies and give it to someone for payment than it does to hand over a one dollar bill.

This is similar to the Bitcoin network. Let’s look at an example:

Alice receives 0.01 Bitcoins every day from her mining contract for 100 days. Bob receives a payment of 1 Bitcoin once. Both Alice and Bob now have a 1 Bitcoin balance.

If Alice and Bob now try to send 1 Bitcoin, Alice will have a much larger fee than Bob. This is because the Bitcoin network has to do a lot more work for Alice to bundle all of her small “change inputs” together vs. Bob, who just has 1 input.

This is similar to someone who tries to spend 100 pennies vs. a one dollar bill. Both amounts have the same value, but the 100 pennies take longer to count, so it is harder to make the transaction.

If you receive small payments over time from a mining contract, you're collecting pennies, essentially. When you send these dozens of small inputs out as one payout the Bitcoin network requires these inputs be smushed together and batched into one payment. The fees on these transactions are far higher than those for sending a more reasonable, 1-3 input transaction.

We have seen fees as high as $50 - $200 for mining contract payouts that have gone on for years. In a few cases, the fee required to send your Bitcoin is even higher than your Bitcoin balance. Because of this, we advise users to either receive larger payouts less frequently or receive their payouts in an asset like Dash or Ethereum, which do not use the same UTXO based system as Bitcoin or Litecoin, and thus will not have exorbitant mining fees because of it. 

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