The Token of the day 21/12: Bitcoin

People often claim that with Bitcoin “you can send money between two points of the world for free”. While that is true in some cases, sometimes a transaction fee is required. The fee, when required, is usually worth a few dollars.

The rates go to the miners to encourage them to maintain mining, which in turn keeps the Bitcoin network safe. They already get a reward of 12.5 XBT for each block they extract, but this reward is reduced by half every 4 years. The plan is that as the block’s reward decreases over time, it will be replaced by transaction fees.

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So, what decides when you have to pay and how much?

Well, like everything else in Bitcoin, the tariff structure is integrated into the network rules, which are defined as “what the reference customer does”. When you try to send coins using the bitcoin kernel (the current reference customer), follow these steps:

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1. Choose which coins to spend

The client has to decide which of his coins to use to compensate the amount of the payment. Each time you receive a payment, the payment goes into your wallet and stays there until you spend it.

If you receive a payment of 2 XBT and another of 3 XBT, you will have 2 new amounts in your wallet, 2 XBT and 3 XBT. They do not “merge” into a single 5 XBT coin. Over time you will accumulate a collection of different sized amounts in your wallet, and the customer must decide which ones best fit the amount he or she intends to spend.

These amounts are known as the “entries” of your new transaction, and the amounts you are sending are known as the “products.”

2. Discourage spam “dust”

If any of the results (including any change) of your transaction is less than 0.01 XBT, a fee of 0.0001 XBT is required. The coin selection algorithm is careful to avoid selecting coins that result in an exchange amount of less than 0.01 XBT if possible.

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3. Prioritize old and high-value coins

If the coins you are spending are too small or too new, then your transaction will not qualify as free. Each transaction is assigned a priority, determined by age, size and number of entries.

Specifically, for each entry, the customer calculates the value of the entry in XBT multiplied by the age of the entry in blocks. Add these products over all the entries and divide the total by the size of the transaction in bytes. If this gives a number less than 0.576, then the transaction requires a fee. This means that you can include many very small and / or very new entries in a transaction and that it does not require any fees as long as it includes a large previous entry along with them; it is the average value by age that matters.

If step 3 caused a transaction to require a fee when originally sent, it is possible that as time passes and new blocks are found, the transaction entries will age, their priority will increase and, as a result, step 3 already It can not cause it to require a fee.

4. Load per kilobyte

Finally, the client verifies the size of the transaction in bytes. The size depends on the number of entries and exits, and is more or less:

148 * number of tickets + 34 * number of departures + 10

If this size is less than 10,000 bytes and step 3 found that the priority of the transaction was high enough to qualify as free, then the transaction still qualifies as free, otherwise a fee is required. The fee is charged for 1000 bytes or part of it. The amount charged per 1000 bytes is set to 0.0001 XBT by default, but it can be increased in the Settings> Options> Main tab of the client. If you set the “rate per kB” to less than 0.0001 XBT in that dialog box, a value of 0.0001 XBT will be used. When applied, this rate per KB replaces any rate in step 2, instead of adding it.

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Are “mandatory” rates really required?

By the way, the concept of “required rate” is not strictly applied. Some miners do not follow the rules on what fees are required, and will include a transaction in their blocks, even if they do not follow the tariff rules. By using the “gross transactions” interface of the reference customer, it is possible to create transactions at a lower rate than required. Such transactions can eventually be included in a block by a nonconforming miner who does not apply the tariff rules, although this could take 24 hours or even much longer.

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