What is a transaction fee and why do we need it
If you want to send crypto you have to pay a transaction fee within most popular blockchains (with rare exceptions). The commission is needed:
- To motivate miners or validators to process a transaction. A miner or validator receives transaction fees or share of it for adding the transaction in the block.
- To protect a blockchain from DDoS attacks. Without a commission, any attacker could swamp the network with millions of crypto transfers between the same addresses. The commission makes such an attack extremely expensive.
To put it simply: transaction fees are charged for sending crypto between addresses, that's both the reward of a validating server and the protection of a blockchain from DDoS attacks.
Cryptocurrency commissions differ from, for example, bank commissions.
- Cryptocurrency commissions do not depend on the amount of a transaction. A miner doesn't care if you send $10 or $10 million.
- A sender can choose transaction fees. In most networks, a miner or validator chooses which transactions to include in the next block based on fees for the block being more profitable. Therefore, for guaranteed access to the next block, the commission higher than the average is required. While transactions with fees below the average risk never getting into the block.
- As for most networks the commission is calculated based on the type of transaction or its size in bytes. It means the more difficult it is for a miner or validator to process it, or less transactions can fit into a block, the higher the fee shall be. For example, a transaction to withdraw a month's worth of mining profits can be very extensive, as it has a lot of inputs.
- Fees depend on the network load. More unprocessed transactions are waiting in the mempool, higher transaction fees are required.
To put it simply: transaction fees do not depend on the amount of transfer, but on the type and size of the transaction. A sender can set fees on his/her own, but a validator chooses which transactions to include in the next block based on the fees.
Some services assist in assessing the average transaction fee at the moment and roughly assess the appropriate commission. The Tangem app assesses fees automatically. But a user can speed the process by choosing “Priority“ option or save money by choosing “Low“ option. But in most cases, “Normal“ commission is enough.
To put it simply: the Tangem app will automatically estimate the optimal commission level for a particular transaction.