Explanation of transaction fees and why they vary
Transactional fees are small compensations that users give out with each transaction in digital cryptocurrency to incentivize miners to process and add their transactions onto the blockchain. In higher-level networks such as Bitcoin and Ethereum, the miners are incentivized through the transactional fees; therefore, they will always go for the higher-fee transactions since it would mean increased income for them. These also block spam on the network since users will not cause the network to flood with superfluous transactions.
These rates are always different, with a number of factors in place, the most important of which include network demand and transaction size. Thus, the more users on, transacting, for example, during peak periods of trading-the more congested the network becomes, and such congestion drives up fees. Also, in each block, miners use very limited space; therefore, they usually like higher-fee transactions. This, on the other hand, makes the users attaching lower fees to transactions wait longer. As demand falls, so do the fees, letting quicker transactions have lower fees.
Another big factor is the transaction size, which makes a big difference in the fees on the Bitcoin network. The larger the transaction, the more computational resources it requires to validate and store; hence, the more expensive the transaction. Such examples include multi-input transactions those originating from multi-signature wallets which are larger and hence costlier.
Thirdly, transaction fees in Ethereum are dependent on gas price, which basically determines the real computational cost of transactions and smart contract execution. More precisely, the price of gas is determined by a congestion effect in the network, so that if demand for computation surpasses supply, the price of gas will increase. Thus, by nature, transaction fees are dynamic and will maintain a balance between users' incentives and network capacity along with miner's rewards.
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VEIGO (Community Mod)
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