Why does blockchain need commission? How to calculate the transaction fees of Bitcoin and Ethereum?

Dec 30,2022
Why does blockchain need commission? How to calculate the transaction fees of Bitcoin and Ethereum?

From the traditional centralized financial system to the decentralized digital currency system, when hearing about the transaction costs of asset transfer, I always have some doubts. Why is the publicity decentralized and the blockchain requires commission? So, let's take a look.

Why does blockchain need commission?

The commission has existed since the establishment of the blockchain, and can even be regarded as the main part of the blockchain system. When different customers push, deposit or withdraw digital currency, they will also need to pay a certain transaction fee. It may be strange to know why blockchain advocates decentralization, but like traditional financial enterprises, it also needs to deduct service fees?

As mentioned above, there are two important reasons for deducting transaction fees from virtual currency:

1. Prevent malicious attacks

As a preventive system. If the entire operation process is permanently free, that is, zero cost, any technician or hacker can make a cost free attack. The emergence of transaction fees has significantly increased the implementation cost of large-scale spam SMS attacks and reduced the spam SMS in the network.

2. Reward system help certification

The transaction fees of the blockchain are used to reward miners and technicians, so that relevant personnel have motivation to help verify and determine the transaction. Promote further improvement of the blockchain, especially as a reward for improving network maintenance.

At present, for most blockchains, the amount of commission is also very low. However, in order to deal with the potential crisis caused by too much traffic, the higher the data traffic is, the more expensive the commission will be.

For customers, the amount of commission you choose to charge determines the priority of the system to import transactions to the next block. In terms of technology and processing logic, the more expensive the commission you charge, the higher the priority and security level of transactions (because no hacker will pay a large amount to attack the network), and the faster the determination process.

How to calculate the transaction fees of Bitcoin and Ethereum?

Bitcoin transaction fee:

The transaction fee of Bitcoin blockchain does not depend on the push limit, but on the transaction size. The so-called "size" is measured based on the bytes of the transaction. For example, the transaction size is 100 bytes, while the average transaction fee is 60 Cong/byte. Therefore, it is necessary to pay about 6000 Cong (or 0.0006BTC) as the basic commission cost to import the transaction to the next block.

When the data traffic rises sharply, the push BTC network demand increases, and the transaction fee will also increase to prevent malicious attacks. As other bitcoin traders will also try to raise transaction fees for quick determination. This happens from time to time during the period when the market fluctuates violently.

Some Bitcoin online digital wallets allow to set transaction fees and push BTCs at zero cost, but miners may mistakenly think they are malicious attacks and ignore transactions, making such transactions unverified.

This has always been a daily problem that Bitcoin and virtual currency need to solve. If intelligence is faced with high-frequency transactions in daily life, transaction fees may be huge. If transaction fees are higher than commodity prices, it is obviously unscientific.

Therefore, there has always been a difference between the daily use of virtual currency network and network service fees. Blockchain developers have been trying to solve problems. In recent years, network upgrades have enhanced scalability to some extent, such as the implementation of SegWit and Lightning Network.

Ethereum transaction fee:

The fuel cost of Ethereum can be divided into two parts, one is the payable cost, and the other is the reward for settling the transaction. At the same time, you should also consider the fuel limit that can be used for each current transaction as the highest price paid for the transaction or task.

The cost of Ethereum fuel gas is the cost required by the exchange, and the price of fuel is the price charged by the exchange for the system to work for one hour. It can be seen that the relationship between fuel quota will determine the total fuel cost controlled by Ethereum.

If the transaction cost of Ethereum is 1000 fuel and the fuel price is 2Gwei, the transaction fee is 2000Gwei or 0.000002ETH.

At present, Ethereum is constantly innovating and moving towards a more decentralized equity proof model (refer to Casper). The network only needs a small amount of computing power to verify transactions. It is determined that the amount of fuel required for transactions will also continue to decline, and it is estimated that fuel costs will continue to decline in the future.

However, since the system is always equipped with a security mechanism such as Bitcoin, it will give priority to solving the problem of high commission charges. The increase of data flow will still affect the rise and fall of transaction commission/fuel charges.

Speaking of this, I believe that you have a certain understanding of why the blockchain requires fees, and how to calculate the fees for Bitcoin and Ethereum transactions. In general, I remind all investors here that although investing in digital currency is a very popular project, the currency circle market is volatile and unpredictable, and investment is accompanied by certain risks. You must have a comprehensive understanding before entering the arena, and do not invest blindly.