Are you ready to send your very first bitcoin? That would cost you $26.
That’s on the high side of what you might pay to use the bitcoin blockchain these days, but if you’re new to the world of cryptocurrencies, it’s understandable how seeing such a exorbitant sum can be a shock.
Despite what you might have heard about the “money of the future,” the fact is bitcoin and cryptocurrencies are expensive.
But while this might not be what you’re used to, looking at the reasons behind blockchain costs can help you understand the technology.
It can also give you information on its weaknesses and where the ecosystem needs more minds to improve.
What’s with fees in the first place?
You’re probably thinking this money is all going somewhere. And it is, just not one single place.
When you send a cryptocurrency transaction, you’re paying for it to be added on the protocol’s blockchain.
You can think of it as an official record of every token on the network ever spent.
Rather than holding this at a bank or a credit card firm, this ledger is distributed.
This means that should any one computer or group of computers go down, the network still has a copy showing that you own your asset.
The bad news is you have to pay all those computers to process it.
Here, we’ll introduce you to the first new person on our journey, the miner.
You don’t know who he or she is, or which one is verifying your transaction.
However, they are doing work dedicating computing power, putting aside coins or doing some other cost-prohibitive function.
All this would help the network to see which transactions to include in which block of the chain.
For this, they’re rewarded with newly “minted” cryptocurrency.
But why so much?
If that’s confusing, you can think of it like this.
See, every cryptocurrency transaction is made up of a small amount of data.
And most blockchains, have inadequate space for that data as a reference for all those transactions.
This way, transaction fees represent how keen you are in getting your transaction through, right away, and stored on the network permanently.
The bigger the transaction fee – which the miners get to collect – the higher your chances are of getting your transaction into the next block that’s processed.
While data limits and how they vary from blockchain to blockchain, in general developers warn against raising the limit too much.
They caution about this as it can lead to technical problems.
Most crypto users didn’t really notice these data limits, since the networks weren’t brushing up against them.
But as a new round of crypto investors and enthusiasts hit the market, raising demand up, these data limits are being tested and the associated fees are going up
But what fee should I add?
Increasing fees are actually a sign that bitcoin, ether and other cryptocurrencies are expanding in popularity and use.
But on the other hand, your wallet might not be prepared to make it easy for you.
Many wallets make you decide, giving you the power to determine how much to pay.
Transactions without a fee or with too low of a fee during peak usage just sit in limbo.
They’re not rejected, but it could take hours, even days, for the network to cool and miners to add the transaction to a block.
Plus, the higher the fee, the more likely it is for your transaction to get picked up by miners.
Deciding what fee is serviceable is tricky.
To help users determine what fee is right, sites offer calculators, and even some developers have tried to make that calculation less of a headache.
So, what’s next?
The other option, and the boldest, is moving into cryptocurrencies that are less-used today.
Yet, the infrastructure around these options may still be limited, and as such, you should know that not only might you have trouble transacting, but development may be ongoing to fix vulnerabilities.
Longer-term, blockchain engineers on many of the largest blockchains are working on a range of “off-chain” solutions that could help the technology scale to more users.
While it’s vague when these solutions will be deployed on the blockchain for the public’s use, many think relief might not take long.
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