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  3. Why are Bitcoin fees so large?

Why are Bitcoin fees so large?

Background

FaucetPay has thousands of deposits every day! Many of these deposits are sent in Bitcoin (BTC).

Around 80% of the deposits sent to FaucetPay are under $10! This has a big implication on why we charge high withdrawal fees.

Technical Details

Bitcoin works on the concept of UTXO – inputs and outputs. Each transaction has a number of inputs and some outputs. The greater the number of inputs/outputs, the greater the size in bytes!

Bitcoin transaction fees are not static and differ from transaction to transaction! If your transaction is large, you’ll pay more fees as it is charged per byte.

How does it affect FaucetPay?

Now, assume that FaucetPay is sending an outgoing transaction (i.e., a withdrawal) of $5,000.

There are several ways for our Bitcoin wallet to pay that. Our wallet can either load a single $5,005 input and pay $5,000 to the recipient and put $5 as miner fees. It can also load 11 inputs worth $500 and then create an output to the recipient and change address. It can even use a single $10,000 input to pay the recipient.

Sometimes, we large withdrawals such as $5,000 using a single input and that works great for us, we pay less than $5 fee for that transaction.

However, as we wrote that, most of the withdrawals are under $10 at FaucetPay, this means that most of the times, our wallet would load 501 inputs worth $10 each to pay this $5,000 withdrawal. This means that the transaction size would be massive!

Let’s do some mathematics now!

Amount to Pay: 0.10 BTC

Inputs: 500 (Assume, each input is 0.0002000 BTC*)

*It’s rare for all inputs to be the same. For the sake of simplicity, we’ll assume that.

Outputs: 1

Size (Bytes): [Inputs * 148] + [1 * 34] + 10 = 74044

Fee: 10 Satoshis Per Byte

Total Fee (in Satoshis): 740440

Total Fee (in BTC): 0.0074044

At the current rate (8th May 2021), that is $435 USD miner fees for this transaction.

Therefore, due to the smaller, dust deposits we receive, it becomes hard for us to maintain the slower fees.

Back in March 2020, we offered the most competitive withdrawal fees at the rate of just 400 Satoshis per withdrawal!

Unfortunately, with ever-increasing Bitcoin fees, we are no longer able to offer free, cheap Bitcoin withdrawals! Our aim has always been to have a no-profit, no-loss system for withdrawals, but then, we continue to make a significant loss due to the network fees.

We hope that you understand that is beyond our control and to keep FaucetPay running healthy, we must charge Bitcoin withdrawals that are in line with the network fees.

Any Alternative?

Of course! You can use our Coin Swap to convert your Bitcoins to an alternative cryptocurrency such as Tron, Binance Smart Chain, Bitcoin Cash, etc. and withdraw them instead! This means you get your withdrawals blazingly fast and at ridiculously cheap fees!

Updated on May 8, 2021

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