EXMO experts give answers to the most frequently asked questions, namely:
- how does bitcoin payment system work?
- how can the low fees slow down payment processing?
- how do the unconfirmed bitcoin transactions appear?
- how to find the appropriate bitcoin transfer by speed and price?
What is bitcoin transaction? How is it processed?
The core principle of bitcoin functioning has been already described by EXMO experts in the articles: “Cryptocurrency. Technical aspects”
, and “TOP-10 facts about blockchain technology”
, also describing the general principles of blockchain technology. Here we will resume the information about bitcoin commissions and their effects on transaction processing speed.
The experts will also provide how to choose the most adequate amount of commissions necessary for a proper transaction processing.
First, it is crucial to stress on how transactions function in bitcoin network. Not all transfers, which have been sent to the network, do immediately deliver bitcoins to the necessary wallets. If a user wants to successfully send bitcoins to the addressee-wallet, a transaction needs to be added to one of the new bitcoin-blocks. The scripts of a bitcoin-mining pool, whose capacities produced that block, automatically makes a decision on whether a particular transaction needs to be added to the block. The outcome a such a decision depends on the commissions provided by a bitcoin owner while transaction creation. A transaction will be kept in so-called mempool, where all the unconfirmed bitcoin transactions are kept, till it is added to a block.
More detailed about mining in the article "Cryptocurrency mining: key facts about “digital gold”
How to avoid delays while completing the bitcoin transactions?
In fact, the majority of Bitcoin users did experience, at least once the delays with sent transactions processing. A lot of inexperienced bitcoin-users do not really understand the reasons of why it is happening. That is why we believe that the issue needs to be illustrated better. The vast majority of cryptocurrencies are based on blockchain
, and usually have a similar processing systems. That is why it would be also important to understand the principles of a transaction performance.
As for today, bitcoin-network is experiencing a continual overload. Due to this, it is not always “eager” to accept a transfer even sent with commissions equaling $8-10.
As a matter of fact, the mentioned commissions cannot always guarantee that your transfer will be confirmed in 15-30 minutes. In most cases, a transaction, which has been backed up with average commissions, is added to the network in an hour or several hours. If the commissions are less than the average, a transfer will be added to blockchain in 6-12 hours, or more. Besides, the lower the commissions are, the higher the chances that a transaction will “stuck” in the network forever and won’t be processed at all. As a result, a user will have to wait for 2 weeks till the bitcoins will be automatically returned. The risks of delays can be still minimized. The commissions of bitcoin-transactions have to comply with the requirements accurate at the time of transfer performance.
How to speed up transaction processing?
As it has been already provided above, the decision on the inclusion of a particular transaction to a specific block is automatically made by program algorithms of a mining pool, which has produced that block.
The volume of a bitcoin-block is restricted and cannot surpass 1 Mb, while the volume of the great majority of bitcoin transactions is 226 bytes. The choice of transactions to be added to a pool is determined by the specific commissions of the last. These commissions are calculated in satoshi per byte. In other words, if a transaction of a total value in 226 bytes is followed by commissions in 113 000 satoshi, the final commission will make:
113 000 / 226 = 500 sat/byte
Supposing there are 4 000 unconfirmed transactions in the mempool with the commissions from 470 to 600 sat/byte; there are almost no transfers with higher commissions, while the number of transactions, which have been provided with lesser commissions, has reached hundreds of thousands. This situation can be seen today. 4000 transactions will be added to every other block, occupying 960 Kb of the internal volume. Evidently, there is space for another 150 transactions. These transactions will be chosen among those provided with commissions from 460 to 469 sat/byte. The higher commissions will be preferred, anyway. The transactions with lesser commissions will have to rest in the mempool.
Basically, we have provided the simplified, general scheme of how it all works. Practically, transactions with commissions of 450, 400, and even 300 sat/byte will most probably be processed by a network and added to blocks after tens of minutes, or hours after they were sent. It happens so due to the irregular overload of the upper part of the mempool.
Sometimes, the blocks are mined more faster than usual, making the miners eagerly add cheaper transactions to them. Moreover, the number of expensive transaction expires till this moment. The old, well-paid transactions are already added to the earlier blocks, while the fresh ones, as valuable as the old ones, are still little in the amount.
How to evaluate situation of bitcoin network and adequacy of commission amount?
There are specialized services aimed to inform on the current situation of mempool, recommended commissions, and other important parameters of Bitcoin network. Thus, following www.blockchain.info, a user may found out the information about the amount of unconfirmed transactions in the network. Website https://bitcoinfees.earn.com provides a number of unconfirmed transactions with specific commissions in graphic and text form.
Picture 1 demonstrates the total amount of the unconfirmed transactions in the bitcoin network indicating whether it is overload or not.
If a user’s bitcoin-transaction has not been added to any network-block (transaction did not reach a wallet), the information about the amount of unconfirmed transactions will be useless for him/her.
Picture 2 partially shows a diagram indicating the differences in transactions commissions coming to a mempool in the last 24-hours. As we may see a lot of qualified bitcoin-users provided their transactions with commission of about 501+ sat/byte, recommended by bitcoinfees.earn.com service during that period. 17 177 transactions with such commissions have already joined bitcoin-blocks. The rest 125 will be confirmed in the nearest future.
Having all the necessary information, bitcoin-user may make the following decisions. He/she may decide on providing the maximum commission, which guarantees that a transfer will be added to the nearest one-two blocks. A user may also decide on providing a lesser commission. In this case, a possible confirmation time will make a few hours.
The problems with sending bitcoins may happen only if they are sent out of the cryptocurrency platform.
At the first part of January 2018, commission of the first type could be 500 - 600 sat/byte, or 0.00113 - 0.00135 BTC for a regular transaction. The commission of the second type - no less than 300 sat/byte, or 0.00070 BTC. However, these figures may change in the nearest future. That is why it is important to monitor their timelines individually.
By the way, the scripts can also offer “recommended” commissions in local, and online-wallets. Though the scripts do automatically figure out the commissions with the help of the network analysis, the provided data is not necessarily renewed as frequently as it is needed according to network situation. It is important to verify the certainty of such recommendations.
The problems of the insufficient commissions, and possible delays in sending bitcoins may appear only while sending them out of the cryptocurrency exchanges. For example, while depositing your account with bitcoins at the exchange, selling bitcoins
at the online exchangers, or withdrawing cryptocurrency from any online-service, such as crypto exchanges, or online wallets.
If you trade bitcoins
and other cryptos
on the exchange, or simply buy bitcoins for investing, the described issues above do not simply occur. The matter is that the bitcoins move takes place between platform clients’ internal accounts.
Additionally, a user also needs to remember that he/she does not always control the choice of a commission amount.
On the one hand, while sending transactions from a range of local, and online wallets
, you may indicate the commission by hand. On the other, while sending a transfer from your account on the majority of online-services, commission is put automatically by the service itself. In both cases, transaction is paid by a client.
It usually happens that the commission is changed by a service once in a few months, or even less frequently. Thus, under overload, the service staff does not have technical capacities to simply increase bitcoin-commission. In other words, the mechanism of commission adjustment on the online services usually turns to be hardly flexible.
If you think that a specific bitcoin transaction is quite expensive, or you are afraid that the service provides inappropriate commission, you may use the other cryptos, such as ETH
, or BCH
. The altcoin transactions can make from a tens of a cent to a few dollars. If a user’s bitcoins were kept on the cryptocurrency platform
, or online wallet with adequate internal cryptocurrency exchange rate
, he/she may use this option.
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Additional materials that may help you:
10 mistakes of a trader. How to avoid them?
Place of cryptocurrency in digital economy
Cryptocurrency rate changes: reasons and factors
Trade figures – what indicators to choose? Part 1
Bitcoin futures: what’s the matter?
Thank you for staying with us!
Your respectfully, EXMO team
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