Why are Bitcoin network fees so high?

Bitcoin (BTC) fees charged in the Exodus wallet are something that not everyone can understand at first, so we have written an extensive article to explain in details how they are formed.

The Bitcoin network calculates fees based on the number of transactions and the size in bytes 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 Bitcoin 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, compared to 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 Ethereum, which does not use the same  UTXO based system as Bitcoin or Litecoin, and thus will not have exorbitant mining fees because of it. 

EXAMPLE CASE

The following is an example of a customer paying $16 in fees. You can see this here in this transaction:

https://blockchain.info/tx/5ea6035e21b9eb27e4eebcb05b078537aae500cf6091cbbdb677910e3831c098

The fee is located under Inputs and Outputs

Now the reason why the customer was charged this much is two-fold:

1. They had many inputs

2. The bitcoin network charges a fee per byte, and every input is about 152 bytes. 

If the bitcoin network charges a fee per byte, and the price for each byte is 210 satoshis (at the time of this transaction)- this roughly translates to 1.2 cents per byte. The total bytes for this transaction was 1369. You can see this under Summary:



So if we multiply 1369 * $0.012, we get a $16.41 network fee. 

If you are receiving mining deposits, each deposit creates a ~152-byte  input, so we would recommend using a wallet that supports fee customization to receive low-volume payouts like this. That way you can reduce (but not eliminate) the fees needed to consolidate the mining deposit inputs. Electrum is an excellent option. You may also consider using the wallet service of Blockchain.info.

Note that you can always see the network  fee  that you will be charged before completing any transaction in Exodus, at the bottom of the Send screen. Here's an example:

If you have any questions, feel free to contact us.