How to Send Bitcoin with Little or No Transaction Fee
In this post, I will show you how to send Bitcoin at little or zero transaction fee.
Have you ever been charged as high as ₦4,000 ($10) when sending bitcoin and you got really vexed at the exchange?
This can be very annoying… But, it’s not the fault of the exchange and there are ways to avoid the high fees.
You will learn all about it in this post.
You will also learn how these fees are calculated and the measures in place to reduce them.
So, if you are ready…let’s get started.
Hence, to give our readers the best experience in these exchanges, I have chosen to break down this post in 4 subheadings;
- 4 Ways to Send Bitcoin at Little or No Transaction Fee
- How are Bitcoin Transaction Fees Calculated?
- Measures Taken to Reduce Bitcoin Transaction Fees
So, sit back and enjoy this post.
4 Ways to Send Bitcoin at Little or No Transaction Fee
This 10mins video will explain some of the things that I will be discussing in this post.
You can check it out or continue with your reading!
Now, here I have listed out 4 ways that you can send bitcoin with less or no transaction fee.
I will be very elaborate and if you don’t mind …let’s dig out the list.
- Send bitcoin to email address
- Send Bitcoin from Blockchain.info Wallet
- Send Altcoins
- Use the Lightning Network (LN)
1. Send bitcoin to Email
Some exchanges allow you to send Bitcoin to other users of the same exchange by email.
Since this is within the same exchange and transactions are not confirmed on the blockchain, you will pay Zero in fees.
The email address has to be the one they registered their account on the exchange with.
Let’s see how this works using Luno as an Illustration:
Say Judith wants to send bitcoin from her Luno wallet to Esther’s Luno wallet.
For Judith to perform this transaction, Esther will send her email address to her.
Judith will now do the following:
- Having received Esther’s email address, Judith will sign in to her Luno account, click on “Wallet” and select Bitcoin.
2. When she has done that, a new interface will be displayed and she clicks on “Send”.
3. A send box will pop up and she goes ahead to fill Esther’s email address in the tag “Send to”, enter the amount, and click on “Next”.
Note: Judith will be provided with so many options to send to;
- Mobile Number
- Email Address
- Bitcoin Address
But she inputs the email address so that the transaction can be performed without fees.
4. A review of her transaction slip will be displayed on her screen. Let’s take a look at her screen.
Above, you can see that Judith’s service charge is showing free on her transaction slip.
Once she clicks on the “Confirm” button, the Bitcoin will be sent instantly to Esther’s wallet at no transaction fee.
Luno will notify Esther via email that Bitcoins have been sent to her wallet.
You can use this exact method for Quidax, Coinbase and other exchanges that have this feature.
Remitano does not have this feature. However, you can send bitcoins to another Remitano Wallet address and you will be charged zero transaction fees.
2. Send Bitcoin from Blockchain.info Wallet
One of the unique features of the Blockchain Wallet is its ability to send bitcoin to any bitcoin wallet address at a low transaction fee.
In the video above, the Bitcoin transaction fees of some reputable exchanges were compared.
Here is the result gotten from the comparison in the video.
Note that these fees are not standard or static, they vary from time to time.
At the end of the day, it was confirmed that the Blockchain Wallet has the least transaction fee.
This is because blockchain.com wallet has a feature that allows users to enter their fee or select from two calculated options.
Note that the lower the fee you enter or choose, the longer it takes for your transaction to be confirmed.
In general blockchain.com and other exchanges calculate what the miners’ fee should be based on.
- Bitcoin Network Condition
- Transaction Size
(You don’t need to worry about these two factors as I will still explain them in a later part of this article)
Then they offer miners a fee high enough for speedy confirmation of their transaction.
However, blockchain.com takes up these nudge by offering user three options;
1.Priority Fee| 2. Regular Fee| 3. Advanced User
This fee is higher than the regular fee and gets your transaction confirmed in under 1 hour.
This fee is lower than the priority fee but your transaction may take over an hour to be confirmed.
This fee is a bit technical. It allows you, to set your fee in units of satoshi per byte (sat/b) i.e. 0.00000001.
You can customize your transaction fee manually with this option. That is if you already have advanced knowledge of the Bitcoin fees and how it works.
Alright, enough talking, let’s go over to the next point.
3. Send Altcoins instead of Bitcoins
Sending altcoins instead of Bitcoins is another way that you can evade high Bitcoin transaction fees.
This is because the network fee for more altcoin is lower than that for bitcoins.
Therefore, instead of sending bitcoins with a high fee, it becomes better to convert your Bitcoin to altcoins.
It might be surprising to know that converting Bitcoin to altcoin is not as high as the Bitcoin transaction fee even when combined with the exchange fee.
(this however depends on the exchange and the volume of coin you are converting)
You can actually be charged zero fees in an exchange when converting Bitcoin to altcoins; that is if you know how to use the exchange profitably.
Now, let’s take a more detailed look at this with the displayed screenshots below.
The screenshots show the cost of sending Bitcoin and Ethereum from Luno (as at the time of conducting this transaction).
In the screenshot that you see above, you will find that it is cheaper to send altcoins than send Bitcoin.
4. Send Bitcoin Using the Lightning Network (LN)
Lightning network is one of the blockchain-related projects that is still in the pipeline.
This project was proposed by Joseph Poon and Thaddeus Dryja to tackle the problem of scalability and high fees on the Bitcoin network.
It is a sort of decentralized network that enables the transfer of payments outside the blockchain network.
Using the Lightning network, you and your counterparty can generate a bi-directional payment channel that will enable you to transfer payment with less transaction fees.
The only fees that are required are;
- The opening fee (that will open your transaction on the blockchain)
- The closing fee (that will confirm only your most recent transaction on the blockchain)
Aside from these two fees, you can make thousands and millions of transactions with your counterparty offline, without transaction fees.
No need to worry about how it works as I will dig further into it in a major subheading below.
So far, I have brought to light everything that you needed to know in the “4 Ways to Send Bitcoin With no Fees”.
But how are these fees even calculated?
Find out in the next subheading.
How are Bitcoin Fees Calculated?
As stated earlier at the beginning of this post, lots of our readers have complained about the high rate of fees charged by some exchanges.
The truth is that these exchanges have nothing to do with the transaction fees.
Transaction fees are strictly spent by miners; hence, they are also called “Miners/Network fees”.
You can imagine the transaction fee as a tip given to miners to induce them for confirming your transaction on the blockchain.
The two factors that are considered before calculating Bitcoin transaction fees are:
Bitcoin Network Condition and Transaction Size
Bitcoin Network Condition
Miners calculate bitcoin transaction fee depending on how congested or free the Bitcoin network is.
Ordinarily, each transaction that is sent to be confirmed on the blockchain is first deposited into the Memory Pool(Mempool).
The amount of transactions that can be inserted and confirmed into one block has a limited capacity of 1MB.
Based on this protocol, it takes about 10 minutes (confirming 4 to 6 transactions per sec) for 1 block to be included on the blockchain.
Unfortunately, if there are a lot of transactions to be confirmed at a time, there would be congestion in the Bitcoin network.
Thus, considering the size of the memory pool and the size of awaiting transactions, miners prioritize your transaction depending on the fee attached to it.
However, if there is no congestion; the fee becomes stable, and transactions are confirmed without delay.
The larger your transaction size, the higher the network fee that you may have to pay.
Every transaction sent to the Bitcoin network contains a piece of code that displays its transaction size.
The larger the size of your transaction, the larger space it takes up in the mempool.
As stated above, blocks are constrained to a maximum size of 1MB.
It would be noteworthy to state here that the size of a transaction is not determined by the amount of Bitcoin that you are sending.
Instead, you can imagine it to be the amount of megabyte a file in your computer is carrying.
So if your transaction size is big, the only way miners will want to confirm your transaction quickly is when a high fee is attached.
These two factors that I have discussed with you are some of the challenges faced by the bitcoin network.
As a result, there has been a spike in the Bitcoin transaction fees.
I hope that I have made a lot of sense to you?
But is there any measures in place to mitigate the high fees?
Find out for yourself below.
Measures Taken to Reduce Bitcoin Transaction Fees
In order to improve Bitcoin’s scalability, Bitcoiners came up with certain measures.
These measures can improve the adoption of Bitcoin and make it a reliable means of making remittance.
Here are the two measures;
Segregated Witness|Lightning Network
Segregated Witness is an upgrade made in the Bitcoin network in the year 2017.
However, it was first proposed by Peter Wuille in a Bitcoin conference held in 2015.
Now, what does this mean and how does it intend to patch up the Bitcoin flaws?
For a better understanding, let us first split and analyze the different words that were combined to make up this word.
Segregate means to separate and Witness represents transaction signature.
Thus, putting these words together, we have: separate, transaction signature.
Hope we are still riding together?
SegWit (for short) is an attempt or a process made to increase the size of a block on the blockchain by removing signature data from Bitcoin transactions.
This optimization made to the Bitcoin network will increase the size of a block from 1 MB to 4 MB.
This way, more transactions will be confirmed quickly at a given time.
SegWit aims to solve three problems in the Bitcoin network and I will list them down below:
- Scalability: To enable the easy flow of transactions on the network.
- Malleability: To stop con bitcoin recipients from stealing bitcoins by altering the sender’s address.
- High Transaction Fee: To make the transaction fee minimal. SegWit causes more transactions to be confirmed at a time thus reducing the fees.
So Bitcoin wallets that implement SegWit have lower fees than the Non-Segwit wallets.
This measure is a better way of scaling the bitcoin transaction than the SegWit approach.
Lightning Network was proposed as layer 2 solutions to the Bitcoin network.
It is a peer-to-peer second-layer payment network built on top of the blockchain network.
The idea is to spike bitcoin scalability by enabling small payments to be transacted off-chain; without having to record each one of them on the blockchain.
Here, is how it works;
Before Lightning Network would work; a bi-directional payment channel must be created as a smart contract between two counterparties.
To create a payment channel, the two parties involved must open a transaction by funding a 2 0f 2 multi-sig wallet on the Bitcoin network.
Alright, enough of the theories …let’s take a more practical approach.
Let’s say Judith pays a TV subscription fee to Esther every single minute.
By now, I know you must have started calculating the transaction fee for each payment confirmed on the blockchain.
For Judith to evade the bitcoin fees that these payments would attract, she opens a payment channel with Esther by funding a 2 of 2 multi-sig wallet on the blockchain.
When this happens, both of them can transact directly without having to pay Bitcoin transaction fees.
This payment channel will remain private to them: Judith and Esther will be the only persons to keep a record of their transactions.
However, if Judith and Esther decide to close this payment channel, the Bitcoin network will only charge them a fee to confirm their last transaction.
Now, you see how much transaction fee that can be slashed if this measure is set to the Bitcoin space.
Finally, I have come to the end of this post.
I am glad that I solved your problem; gradually taking bit by bit every single detail in this post.
We have rolled up everything that is needed to know about bitcoin transaction fee.
So, you can tell me;
Have you sent Bitcoin with high stipulated fees? What was your experience?
Do you think miner’s self-interest and not the Bitcoin network congestion or the transaction size is the cause of the high network fee?
Which of the two measures to scale bitcoin do you prefer and why?
You can put down your comments in the comment box below and do not forget to share this post with your friends.
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Originally published at https://www.nigeriabitcoincommunity.com on July 31, 2020.