How To Reduce Bitcoin Transaction Fees

Reducing btc transaction fees

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Bitcoin is the first form of digital money where you not only have custody of the asset yourself, but you can control the conditions in which it is spent; when you broadcast to the network, you can use the default rules of the wallet, or you can customise it to your needs, that is the beauty of programmable money. It’s the reason many refer to bitcoin ownership as being your own bank.

If you’ve been thinking about accepting bitcoin in your daily life, for business, pleasure or saving for the future, but you want to avoid paying high transaction fees, then it all depends on the lengths you are willing to go to when handling your funds. Most people using bitcoin to transfer funds from an exchange to a hot wallet or cold storage don’t have much say in how transactions are performed. Of course, exchanges also don’t want to pay fees, so they do tend to batch transactions or broadcast at certain times to reduce fees, but this is not always a given.

You are at the mercy of the exchange and have to abide by their rules when transferring funds. However, once bitcoin is in your possession or you acquire bitcoin on-chain via P2P trades, you have a little more control over how funds are transferred.

If you’re serious about your bitcoin, you’ll likely be keen to figure out ways to retain more of your sats when moving and managing your funds, so let’s take a look at a few ways you can reduce your payment for block space on the bitcoin time chain.

1. Batch transactions

Batching refers to the number of transactions you submit into the limited space available on bitcoin’s blockchain. Combining multiple payments into a single operation is both cost- and space-efficient. Batching allows you to reduce your per-transaction fee by aggregating multiple transactions into one. You will broadcast one transaction to the chain, but the destination of that bitcoin would move to many wallets. This option might not be practical for individuals but is common among merchants and exchanges who have several bitcoin transactions in a day or week.

2. Wait it out

The Bitcoin network gets strained at times of peak use, like any highway during rush hour. You’ll get stuck with the rest of the commuters trying to pass through at the time. When the network is handling the highest transaction volumes, you’re bound to pay higher transaction fees. You can avoid this by waiting to submit your charges.

Bitcoin transactions tend to drop in volume over the weekend, so if you can wait for traffic on-chain to be slow, you can take advantage of these times to broadcast to the network. This is not a hard rule, and it can change as more people come onto the network or certain global events influence demand to transact.

3. Enter a custom fee

All Bitcoin transactions that get sent to the mempool will have to wait for miners to confirm them in the next block. Bitcoin fees are a way to get their attention in the first place; they support miners with extra incentives and help prioritise transactions. If your transaction is not time-sensitive, you can manually input one that’s lower than the market average.

If you choose to do this, just know your transaction could take a longer time to confirm, but if accepted, you can pay a much lower fee.

4. Watch the Bitcoin Mempool

If you have a bit of time on your hands and you don’t want to get too into the technical weeds, then perhaps using timing is your best bet. You can access mempool data either by running your own full node or using one of the various block explorer websites that display the fees others have paid to get their transactions confirmed. These dashboards give you an estimation for priority, competition and cost, which in turn can help identify the fee you’re willing to pay to meet your timeline. You can also see when mining is moving quickly – meaning transaction fees will temporarily drop – and when it’s slowing down, which will cause fees to increase.

Using a mempool you can pick out the best times to conduct a bitcoin transaction and set an acceptable fee that would be accepted by miners for the next block without overpaying.

5. Use the liquid network

The Liquid network is a layer two (side-chain) developed as a method of pegging bitcoin into another chain that operates by a different set of rules. It is aimed primarily at traders and exchanges to allow faster settlement in 2 minutes rather than 10 minutes on bitcoin’s main chain while providing more privacy and confidential transactions. While you are making a trade-off in decentralisation, you also gain access to lower transaction fees. To use the Liquid network, you will need to use a Liquid-compatible wallet and exchange, which can become a barrier to entry for some.

Luckily there are ways of swapping between the chains through various peg-in services and permissionless exchanges. So you can acquire bitcoin on Liquid and take advantage of the low fees and peg out into bitcoin with an amount of bitcoin where you won’t mind paying on-chain fees.

6. Use the lightning network

The Lightning Network is one of bitcoins’ primary solutions for scaling the network so more people can use it in various ways and bypass the limitations of the primary blockchain. This second layer solution is a protocol that runs on top of the bitcoin main chain and transfers bitcoin peer-to-peer via lightning channels. You can make fast and cheap micro-payments using the network and when you’re done, simply close your channel or submarine swap back to the base chain.

The lightning network allows you to make thousands of transactions for tiny fees but, like Liquid, requires you to use wallets and exchanges that support this service. If you are using Lightning in a non-custodial manner via your Lightning node, you are still subject to bitcoin chain fees when opening and closing channels, so you’ll need to factor that cost into your calculations.

7. Use coin control

When you transfer bitcoin to another wallet, the bitcoin client you’re using randomly selects which of your addresses will send the coins. The alternative would be to use coin control, where you can choose exactly which of your addresses will be the sending addresses. You can be even more specific and select which of your unspent outputs (UTXO) will be sent for the transfer in question and select the UTXO that would be the cheapest to move based on the funds you need to pay.

8. Use a Bech32 address

If second-layer solutions are simply not up your alley and you prefer to stick to the main chain for transactions, then always make sure you’re using the modern address format, known as a Bech32 address. Bech32 is an updated format used to pay native SegWit addresses and is far less data-intensive, so you’re taking up less space and therefore pay lower fees. Depending on competition for block space at the time, switching to a SegWit transaction can net you between 25 to 40% cheaper fees than non-SegWit ones.

Become satoshi savvy

As you can tell from the options above, there are many ways to slice a transaction and leverage the bitcoin network, and they all have different trade-offs. Depending on the way you use bitcoin and the goals you have in mind, this will affect your preference for certain methods over others. There is no right or wrong way; some methods trade convenience, security and speed to help you offset costs, and you’ll have to consider which trade-offs you’re comfortable with before picking your cost-cutting method.

Chasing savings might be a smart way to move your bitcoin, but chasing savings at all costs might not always be the wisest choice, as many of these options can be quite technical, and if you’re not ready, you might end up making costly mistakes. So take your time in exploring these options first; the more comfortable you become with bitcoin, the easier it will become to use cost-saving techniques.

Shill us your fav save

Have you used any of these satoshi-saving tips? Which one is your favourite? Do you have a transaction-reducing technique we didn’t mention? Let us know in the comments down below.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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