How are blockchain transaction fees calculated? Bitcoin, Ethereum, and BSC explained at once

Many people are stunned when they transfer money for the first time: Why do they need to deduct an additional handling fee when they are clearly transferring coins? This money is not collected randomly by exchanges or wallets, but is a necessary cost for the operation of the blockchain network itself. The handling fee mainly does two things: one is to pay the miners or validators who confirm the transaction, and the other is to make spam attacks expensive, otherwise someone can blow up the network at zero cost.

Let’s look at Bitcoin first. The handling fee of Bitcoin has nothing to do with the transfer amount. If the transaction data is the same size when transferring 0.001 BTC and 100 BTC, the handling fee may be similar. What really determines the fee is how many bytes the transaction takes up. For example, if your transaction is 400 bytes, and the average fee at that time is 80 satoshis per byte, then the handling fee is approximately 32,000 satoshis. When miners package, of course they give priority to transactions with high fees, so if you are in a hurry, pay more. Bitcoin later made two upgrades to alleviate congestion: SegWit changed the data storage method and increased the block capacity in disguise; the Lightning Network moved small payments off-chain, and only went up-chain for settlement when switching channels.

Ethereum’s charging logic is completely different. It does not look at the number of bytes, but the amount of calculation, and the unit is called gas. A simple transfer consumes a fixed gas of 21,000, but calling a smart contract may consume hundreds of thousands or more. After EIP-1559 goes online in August 2021, the fee is split into two parts: the base fee is automatically set and destroyed by the protocol, and the tip (priority fee) is given to the verifier to speed up packaging. In September 2022, Ethereum completed the merger (The Merge), switching from mining to proof of equity, but the fee calculation method has not changed, except that the tip is transferred from the miners to the verifiers. The mainnet gas price fluctuates greatly. The basic fee may be as low as 0.4-2 Gwei in normal times, but can rise to more than 20 Gwei when encountering popular token issuance or violent market conditions. The rates displayed in the wallet are only current at that moment and may change in a few minutes.

The fee structure of BNB Smart Chain (BSC) is similar to that of Ethereum, and is also priced in Gwei. 1 Gwei is equal to one billionth of BNB. However, BSC has fewer validators than Ethereum, which results in faster block generation and lower fees at the expense of weaker decentralization. When transferring money on BSC, you must leave some BNB as gas, otherwise you will be prompted for insufficient balance.

There are several practical ideas for saving money. The Layer 2 solution moves transactions to side chains or rollups, and regularly returns to the main network for settlement, which can reduce the cost of a single transaction by an order of magnitude. Ethereum's rollup can package hundreds of transactions into one on-chain record. Bitcoin users can use the Lightning Network to open a payment channel. Transfers within the channel are almost free and only go up to the chain when the channel is closed. The other thing is to choose the time. When the network is not congested, the rate is low. You can save some money by taking a look at the rate estimation tool before sending a transaction. You can also save some money by manually lowering the rate, but the confirmation will be slower.

The handling fee is not fixed and fluctuates in real time with the degree of network congestion. Both Bitcoin and Ethereum experienced skyrocketing handling fees during the peak of the bull market. BSC is relatively cheap but has its own trade-offs. Understanding these mechanisms will at least allow you to know what to do when transferring money and not be scared by fees that suddenly appear.

Reference: Binance Academy Original link: https://www.binance.com/en/academy/articles/what-are-blockchain-transaction-fees

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