I wrote on a couple of occasions previously about the cost of Bitcoin transaction fees after SegWit went live on 23. August. I kept updating my article Bitcoin Transaction Fees after SegWit2x Lock-In with data from bitcoinfees.21.co to follow the trend. After about a week — on 30. August — I wrote:
Transaction fees have not yet subsided that much, but the backlog of unconfirmed transactions seems to have decreased significantly.
In other words, I noticed an important change was taking place, but I failed to recognize its consequences. However today I witnessed something interesting and very encouraging, yet highly confusing. Bitcoin transaction fees have indeed sustained a massive drop recently — but a drop that is not readily apparent unless you are willing to ignore what desktop wallets and fee tracking services tell you and do some firsthand research.
The current chart from bitcoinfees.21.co still reports quite high average fees for ‘fastest/cheapest Bitcoin transactions’ (the number is presently around 300 satoshi/byte). However now I believe these estimates are quite far off, and I will show to you that you can send Bitcoin at far lesser cost without compromising on transaction speed.
An hour ago I initiated a withdrawal from my NiceHash wallet. This service charges a fixed fee of 0.0005 BTC for all withdrawals under 0.25 BTC, which masks the true cost of a withdrawal transaction. However, given the transaction ID, one can check the actual fee NiceHash paid to send bitcoins. In this particular case, the fee for the transaction that included my withdrawal was a very beningn 6 satoshi/byte. It is also important to note that the transaction itself went through very quickly, and was added to a block just 4 minutes after being submitted to the mempool. Compare that to a previous withdrawal from 10. August that took 27 minutes to be picked up and cost 174 satoshi/byte.
This really peaked my curiosity. Was this a singularity, or are cheap Bitcoin transactions really possible once again? And why would bitcoinfees.21.co still report high Bitcoin transaction fees?
To try at get more information about this, I turned once more to the almighty blockchain.info website and inspected a recent Bitcoin block (block #483299). Although I know very well that miners prioritize bitcoin transactions for inclusion in the block, I hadn’t realized something obvious: that individual transactions within each block are actually sorted according to the size of the Bitcoin transaction fee. The transaction with the highest fee comes immediately after the coinbase transaction 1, and the transcation with the lowest fee that made it into the block comes last. This makes it very easy to compare highest- and lowest-cost transaction fees.
The first transaction in block #483299 carries a humongous fee of 0.018016 BTC over 225 bytes (8,007.11 satoshi/byte); in complete contrast, the last transaction in the same block used a miniscule fee of just 0.00000134 BTC over 216 bytes (0.62 satoshi/byte). Are you surprised yet?
Note that both transactions were included without delay: they were broadcast 7 seconds apart and were included together in the same block some 11 minutes later. Apparently no compromise was made. So this begs the question — if cheap bitcoin transactions are possible once more, how come so many people leave so much money on the table?
The final thing that I did before hitting the post button on this article was to open my Electrum wallet and check the bitcoin transaction fee their service proposes for a simple transaction (1 UTXO used as input; 2 new UTXOs created; total length: 226 bytes). It came out to 80,023 satoshi, or 354.08 satoshi/byte. This is 22 times less than what that unfortunate chap mentioned above paid yet still 600 times more expensive than the other ‘lucky’ dude who paid 0.01 USD to move more than 20,000 USD worth of Bitcoin.
At this point, there was only one thing left for me to do: put my money when my mouth was. I initiated a small Bitcoin transaction and entered a very small fee: only 323 satoshi for a 225-byte transaction, or 1.44 satoshi/byte. Electrum immediately complained that the fee was too low, but I shrugged off the warning and went on to broadcast the transaction. The smallest transaction fee in the latest available block before I did this (block #483324) contained a pair of transactions priced at 1 sat/B and another one priced at 1.83 sat/B, followed by multiple transactions at 5 sat/B, so I said let’s try and catch the cheap train.
I then initiated a second small Bitcoin transaction, for which I doubled the fee (I tried to enter 646 satoshi, but Electrum rounded up that to 700 satoshi for some reason, so the second Bitcoin transaction cost came to 3.11 satoshi/byte. Unfortunately, the second transaction would not clear until the first one went through, because I used the UTXO of the first one as the input for the second one, and so I was not able to make a direct comparison of clearance time.
What happened next was not quite expected. The two blocks that came immediately after I posted my transactions were uncharacteristically delayed. Block #483325 took 28 minutes to hatch, and block #483326 cooked for another 37 minutes. Because of this unforeseen delay, enough high-paying transactions piled up so that my own two payments initially got ignored. However they were finally picked up about a hour and a half later, and then quickly went through another 5 confirmations. This gave me the satisfaction of being able to say, ‘I told you so.’ — even though I was alone at the time.
The moral of the story? Bitcoin transaction fees seem no longer to be the large expense we have come to loathe, and it is now possible to once again send bitcoins very cheaply. More importantly, it also seems that many systems have not yet adjusted to the new fee structure, and if you rely on automated fee calculation, it is highly likely that you will be overpaying.
If you need to send payments and have control over the size of the transaction fee, now you can spend much less than what was possible less than a month ago. Do your due diligence and make sure you are not throwing away good money by making the fees unnecessarily high. Check several recent Bitcoin blocks and examine the fees for the transactions in the bottom of the list. It is highly likely that you may be able to optimize your costs by manually adjusting the size of the bitcoin transaction fee without sacrificing speed of processing.
Can you confirm this substantial fee drop from your own experience? What tricks do you use to make sure you’re not overspending when sending Bitcoin? Let me know in the comments below.