General principles of making transactions in the BTC blockchain. Travel payment and speed. Ways to calculate the cost of an operation. Additional delays. Transfers via altcoins.
Bitcoin is a complete blockchain-based infrastructure. To learn how to use and carry out a transaction with minimum costs, you need to familiarise yourself with the basic principles of transferring funds from one wallet to another. For this, it is important to understand the following:
How the Bitcoin payment infrastructure works
How miners’ rewards determine speed
Scalability problems and how to solve them without loss
How pending transactions appear on the blockchain
How to understand the correlation between speed and cost
The infrastructure is built on a distribution network on which information is recorded. The main characteristic of the blockchain is consistency and the impossibility of subsequent rewriting.
To conduct a transaction, you need to write it to a new block of the blockchain. Portions of the chain do not arise out of nowhere, but are deciphered by miners. This process is called mining.
The expansion rate is 6 blocks per hour (1 block per 10 minutes). The block size of the chain is 1 megabyte or 1,048,576 bytes. The average transaction size is 226 bytes. The blockchain records wallet addresses and amounts of BTC transferred. Approximately 4500 operations take place in ten minutes.
The limitation on the volume of transactions recorded in a block was created with potential DDoS attacks taken into consideration. 1 megabyte is sufficient to carry out any operations instantly. With the growth of the community, the number of records has grown exponentially. The large number of users and transactions has created queues, resulting in fee deflation.
All financial transactions are entered into a general queue. Miners decide which transfers get written onto the chain.
With the increasing complexity of computations for blocks, pools have replaced miners. Centralised structures have formed an oligopoly. Consolidation of computing power has made it possible to unilaterally establish increased commissions.
The priority of operations entering the new block is as follows:
Personal transactions of pool owners.
Distribution of profit to miners’ wallets.
The minimum acceptable price is 500 satoshi per byte of transmitted information. The transaction size is 226 bytes, and the size of the balanced commission is 113,000 satoshi (approximately USD $15).
The transaction cost fluctuates. During a period of increased network load, it increases, and with the advent of new miners, it falls. In the absence of trading operations, miners fill the queue with the lower mem-pool (old transactions with a low established commission).
For optimal cost and transaction speed, you should determine the current network load. This can be done through interactive google maps that store meme pool data.
If the load is high, then you should set the reward higher so that the withdrawal will be processed faster. If the generation time has decreased, then you can set a lower commission.
To determine the market price of the commission, you need to refer to the statistical diagram of the meme pool. Statistics displays:
The lower boundary price.
The highest transaction cost.
Volume of transactions at the weighted average price.
The size of the transaction is not limited to 226 bytes, and when transferring large amounts, the number of bytes in the block increases.
In addition to the standard delays in paying the commission of miners, there are “external delays”:
Delay and commission of a fiat payment system.
Delay and commission of the exchange service.
Exchange services are a simple and convenient way to exchange cryptocurrencies for fiat funds. The service charges an additional commission for this.
In addition, the exchanger can set a “hidden” commission for the miner. Unclear terms entail additional costs for the user.
You can determine the real commission charged to the miner set by the exchange service by the speed of the transaction.
In an effort to save money, the exchange service can set a reduced commission, which increases the term of the operation. Fraudsters work at a reduced commission who steal fiat funds from gullible users.
Operating with small amounts, it is easier to use the services of the EXMO exchange. The advantage of the exchange is that there is no actual migration of Bitcoin, since everything happens within the exchange wallet.
When you need to cash out Bitcoin or transfer coins to another trader’s account, the operation takes place instantly and without additional fees. The process of transferring cryptocurrency into fiat funds is carried out with a regulated period of the chosen payment system or bank.
It is possible to provide a quick and cheap withdrawal of cryptocurrency into fiat money through altcoins. They have fewer records on the blockchain than Bitcoin, which reduces costs and speeds up withdrawals. Withdrawals via altcoins are also best done through a centralised exchange to avoid additional blockchain transactions.
Block size is a sticking point for Bitcoin. The community is developing alternative Segwit2x protocols that should increase the block size in megabytes. The growing controversy over the sustainability of large block cryptocurrency led to the split of the community and the creation of Litecoin and Bitcoin Cash.