How are Bitcoin transaction fees calculated?

What an address is

An address is where someone asks to be paid. A legacy address holds the hash of a public key (Module 7 covers keys), plus a checksum to catch typos.⁴

You can tell the type of a Bitcoin address by how it starts:⁵

The bc1 addresses are normally written in lowercase, and their last six characters are a checksum.⁶ In an address of the expected length, any mistake that affects four characters or fewer is always caught.⁵

The whitepaper suggested a new key pair for every transaction, so payments are harder to link together.⁸ Using one address again and again lets others track your payments on the public chain.⁴

Size, not amount

There is no fee to receive bitcoin.¹ By custom, the sender pays.²

The fee has nothing to do with how much you send. Sending 100,000 bitcoin can cost the same fee as sending 1.¹ What matters is how much space the transaction takes up in a block.^1,2

Size is measured in virtual bytes (vB). Since the SegWit upgrade in 2017, a transaction's weight is divided by 4 to give its virtual size.^9,3 A block can hold 4,000,000 weight units, which is 1,000,000 vB.^9,3

Fee rate

Miners compare transactions the way you might compare the price per kilo of rice: they divide each fee by its size.² The result is the fee rate. It is most often written in sats per virtual byte, or sat/vB.^2,3

So the sum is: fee = size in vB × fee rate in sat/vB.^2,3 To turn sats into bitcoin, divide by 100,000,000.¹

Waiting in the mempool

Before it is mined, a transaction waits in a mempool: a node's queue of unconfirmed transactions. Each node keeps its own, so they can differ.³

No rule and no miner sets the fee. The sender chooses it, like a bid in an auction for space in the next block.² A higher fee rate generally means a quicker confirmation.³ Rates change all the time, so check the suggested rate right before you send.³

If a transaction was sent with replace-by-fee (RBF) turned on and gets stuck, it can be replaced by a version with a higher fee.³ Since Bitcoin Core 28.0, released in October 2024, its nodes accept such a replacement by default even when RBF wasn't turned on.^10,2 This is called full RBF.²