Summary

For blockchain networks, transaction fees have two basic functions. One is to reward miners or verifiers who confirm transactions; the other is to ensure the security of the blockchain network and avoid spam attacks.

Transaction fees can be more or less, depending on network activity. In addition, market factors will also have an impact on transaction fees. Although high transaction fees will hinder the widespread application of blockchain, if fees are too low, it may cause security risks.

Why are transaction fees charged?

For most blockchain systems, transaction fees have been an important component from the beginning. Users mainly need to pay transaction fees when sending, depositing or withdrawing digital currencies.

Most digital currency transactions will generate handling fees, mainly for two reasons. First, transaction fees reduce the amount of spam in the network while significantly increasing the cost of conducting large-scale spam attacks. Second, transaction fees serve as a reward for users who assist in verifying and validating transactions. Therefore, transaction fees can also be regarded as rewards for actively maintaining the network.

For most blockchains, transaction fees are usually kept at a reasonably low level, but if the network traffic is very heavy, the fees can become very high. From the user's perspective, the transaction fee paid determines whether the transaction can be added to the next block first. The higher the transaction fee paid by the user, the faster the transaction will be confirmed.

Bitcoin transaction fees

As the world's first blockchain network, Bitcoin took the lead in setting transaction fee standards, which are still used by many digital currencies today. Satoshi Nakamoto discovered that setting transaction fees not only protects the network from large-scale spam attacks, but also encourages active users to behave appropriately.

After confirming that a transaction can be added to a new block, Bitcoin miners receive the corresponding transaction fee. The pool of unconfirmed transactions is called the memory pool ("mempool" for short). When a user sends Bitcoin to another Bitcoin wallet and is willing to pay more transaction follow-up fees, then the transaction will naturally be prioritized by the miners.

Therefore, criminals who wish to maliciously slow down network processing must pay a corresponding transaction fee for each transaction. If they are only willing to pay low transaction fees, miners are likely to ignore their transactions. If they pay reasonable transaction fees, they incur high financial costs. Therefore, transaction fees become a simple and efficient spam filter.

How are Bitcoin transaction fees calculated?

In the Bitcoin network, some digital currency wallets allow users to manually set transaction fees. Users can set the handling fee to zero when sending Bitcoin, but such transactions are likely to be ignored by miners, resulting in unverified transactions.

Contrary to what some people think, Bitcoin transaction fees do not depend on the transaction amount, but on the transaction size (in bytes). For example, assuming a user makes a 400-byte transaction, the current average transaction fee is 80 satoshi/byte. In this case, the user would have to pay approximately 32,000 satoshis (0.00032 Bitcoins) for a chance to have this transaction added to the next block.

When the network is busy and there is a large demand from users to send Bitcoin, the fees required to speed up transaction confirmation will increase because other Bitcoin users will also try to speed up transaction confirmation. This may happen from time to time during periods of severe market volatility.​

Therefore, high transaction fees pose challenges to the daily application of Bitcoin. For example, if you use Bitcoin to buy a cup of coffee worth $3, the handling fee will be much higher than the price of the coffee itself, which may be very impractical.

A block can only contain a certain number of transactions, and the capacity of a block (i.e. block size) is only 1 MB. Although miners have been working hard to quickly add these blocks to the blockchain, the speed is ultimately limited.

At this time, the scalability of the digital currency network becomes a key factor in determining network transaction fees. Blockchain developers are constantly working to solve this problem. Previously completed network updates, such as the implementation of SegWit and Lightning Network, have significantly improved scalability.

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Ethereum transaction fees

Ethereum transaction fees are calculated differently compared to Bitcoin. The latter takes into account the computing power, or gas, required to process transactions. Fuel prices range from high to low, and are priced in Ethereum (ETH), the native token of the Ethereum network.​

While the amount of fuel required for a particular transaction can remain constant, the price of fuel can still fluctuate. Fuel prices are directly related to network traffic. If a user pays a higher gas price, miners are likely to prioritize the transaction.

How to calculate Ethereum transaction fees?

Quite simply, the total gas fee is equal to the cost fee plus the incentive bonus for processing transactions. However, users should also consider the gas cap, a metric that sets an upper limit on the price that can be paid for that transaction or task.

In other words, the fuel consumed refers to the amount of work required, while the fuel price refers to the price per hour of work. The relationship between these two and the gas cap determines the total transaction fees for Ethereum transactions or smart contract operations.

For example, if a transaction consumes 21,000 gas and the gas price is 71 Gwei, the transaction fee is 1,491,000 Gwei or 0.001491 Ethereum (ETH).

Source: Etherscan.io

As Ethereum moves towards a proof-of-stake model (see Casper), gas fees are expected to decrease. The amount of gas required to confirm a single transaction will also be reduced, as the network only requires a fraction of the computing power to verify transactions. However, network traffic will still affect transaction fees, as validators will choose to prioritize transactions with higher fees.

Binance Chain transaction fees

Binance Chain is a blockchain network that allows users to trade and buy Binance Coin (BNB) and other BEP-2 tokens. In Binance Chain, users can also create and issue tokens themselves. Binance Chain uses a delegated proof-of-stake consensus mechanism. Therefore, there are no miners on Binance Chain, only validators.​

Binance Chain also powers the Binance decentralized exchange platform, where users can directly trade digital currency assets in their wallets. Transaction fees on both Binance Chain and the decentralized exchange are paid in Binance Coin (BNB).

Please note that Binance Chain and Binance Smart Chain are two different blockchains. For more information, see Introduction to Binance Smart Chain (BSC).

How are Binance Chain transaction fees calculated?

Whether the standard trading fee structure in Binance Coin (BNB) applies depends on what operations the user wishes to perform. The fees for sending BNB are different from the fees for trading BNB on the Binance decentralized exchange. Moreover, the total transaction price may also increase or decrease with the market price of Binance Coin (BNB).​

When conducting non-sale-related transactions (such as depositing or withdrawing Binance Coin from a wallet), transaction fees can only be paid in Binance Coin (BNB). When conducting transaction-related activities on the decentralized exchange platform, transaction fees can be paid using the tokens traded, but payment in Binance Coin (BNB) can enjoy a discount. This program helps motivate users to use Binance Coin (BNB) and build a solid user base.

Binance Smart Chain transaction fees

Binance Smart Chain (BSC) is another blockchain built by Binance that runs in parallel with Binance Chain (i.e. two independent networks). Binance Coin (BNB) running on Binance Chain and Binance Smart Chain are BEP-2 tokens and BEP-20 tokens respectively.

Binance Smart Chain supports the creation of smart contracts, which are more customizable. The composition of Binance Smart Chain transaction fees is not as fixed as Binance Chain. Instead, Binance Smart Chain uses a fuel mechanism (similar to Ethereum) that represents the computing power required to execute transactions and smart contract operations.

The Binance Smart Chain (BSC) network adopts a proof-of-stake consensus mechanism. Users become validators by staking Binance Coin (BNB). After the block verification is successful, you can receive the corresponding transaction fee.

How are Binance Smart Chain transaction fees calculated?

As mentioned above, the transaction fee structure of Binance Smart Chain is very similar to that of Ethereum. Transaction fees are expressed in Gwei, which is a small unit of Binance Coin equal to 0.000000001 ETH. Users can set their own gas prices and let validators prioritize adding their transactions to blocks.​

For current and historical average fuel prices, visit BscScan to view detailed daily average prices, historical lows and highs. As of March 2021, the average transaction fee in Binance Smart Chain is approximately 13 Gwei.

In the example below, the fuel price is 10 Gwei. Please note that the fuel limit set is 622,732 Gwei, but only 352,755 Gwei (52.31%) was used in this transaction, and the transaction fee generated was 0.00325755 Binance Coins (BNB).

Source: Bscscan.com

Binance Smart Chain’s transaction fees are generally low, but if a user does not have Binance Coin (BNB) in their account when sending tokens, the platform will prompt a lack of funds. Please make sure you have enough Binance Coins in your wallet to cover the transaction fees.

Binance withdrawal fees

When withdrawing money on the Binance trading platform, you need to pay relevant transaction fees. The exact amount depends on which digital currency and network the user uses. For transactions carried out within the trading platform, Binance has specially set up a set of transaction fee charging standards. However, withdrawal fees are also affected by some external factors beyond Binance’s control.

Digital currency withdrawals require the assistance of miners or validators outside the Binance ecosystem. Therefore, Binance must regularly adjust withdrawal fees based on network conditions such as traffic and demand.

We also set minimum limits for digital currency withdrawals. Please refer to the transaction fee standards webpage for the latest limit standards.

Transaction fees are charged based on the VIP level of the account and have nothing to do with withdrawal fees. A user's monthly cumulative trading volume will determine the VIP level of their account. Currently, the maximum fee standard is 0.1% of the value of the digital currency traded by the order maker or taker. Please note that if users pay with Binance Coin (BNB), they can enjoy a certain discount on transaction fees.

Summarize

Transaction fees are an important part of the digital currency economy of the blockchain network. They are an incentive for users to actively maintain the network, and they also play a role in protecting the network from malicious behavior and spam.

However, the traffic that some networks receive can also cause transaction fees to rise significantly. The decentralized nature of most blockchains makes them difficult to scale. Some blockchain networks do have extremely strong scalability and high transaction throughput, but they often do so at the expense of security or decentralization.

Despite this, many developers are still working on improvements, and we expect that such improvements will eventually increase the inclusiveness of digital currencies in this ever-changing world.