Bitcoin Transaction Fees and Ways to Save When Trading

Bitcoin transaction fees have definitely gathered the attention of a lot of developers around the world. When bitcoins change their owner, the transaction is always a subject of a fee that’s paid by the sender. Unlike the banks, where they charge you a flat rate or a percentage based on the value, the bitcoin transaction fees depend on the amount of data needed for encoding.

The fees may sometimes be very expensive for the one who pays. Usually they represent a small amount of the whole transaction. But there are cases where the fees exceed the amount being transferred or are really high in general. You need to be aware that this may happen in the following hypothetical situations: published address to collect donations; old bitcoin wallet; you take part in a mining pool and etc.

The creator (or creators, as it’s still disputed) of Bitcoin Satoshi Nakamoto, described it as an “electronic cash system”. You probably can’t find important the difference between a online banking system and a cash system. But if you want to understand the bitcoin transaction fees, you need to disregard all your previous knowledge on the standard payment methods that you’ve had.

Try to imagine that you are organizing a fundraising event and you are the one collecting all the donations, each one carefully placed in a paper envelope. At the end of course, you would merge all the funds and redistribute them into new envelopes. Now, back to our cryptocurrency, the bitcoin address represents such digital “cash envelope”. Zero or more units of electronic cash in different denominations are held on that address. All incoming payments increase the value on the address by adding cash units, while the outgoing payments remove value and cash units.

As a reference to the units of electronic cash, bitcoin uses the term “unspent output”. Imagine it as a paper bill with a fixed denomination. Address’ unspent transaction output gives any application the required information to construct new transaction inputs for spending.

Not all bitcoin transactions are equal. As a start, through bitcoin transactions one or more unspent outputs change their owners. So, whether you makes sense of it or not, fees are not based on the total value of the reassigned unspent outputs, but on their total number.

Transactions are represented as droplets of digital data, similar to the files on your computer. Files have certain content and take up disk space, so the bigger they are, the higher network bandwidth they would require for transfer. Similarly to that, greater number of reassigned unspent outputs require more data and resources for validation and archiving. That’s why, if you pay a certain amount of bitcoins consisted of big number of unspent outputs, then the fee would be higher. This is because the data requirements for this transaction would be heavier load for the network’s bandwidth and storage.

There are a couple of ways to minimize the transaction fees. You have probably already guessed the first one and it’s minimizing the number of small inputs in a bitcoin wallet. Try to avoid receiving them. If you have a clients that pays you regular but small amounts, try instead negotiating rarer, but larger payments. But if the number of payments that you receive is not under your control, because they are from donations, your software wallet might select the right inputs for you. If that doesn’t work and the fees continue to be high, consider getting a wallet supporting coin control such as Bitcoin Core.

The way to reduce bitcoin transaction fees is by reducing the data requirements for each input. This happens with compressed public keys that help reducing the per-input byte requirement from 180 to 148. If you are not sure whether your bitcoin wallet uses public key compression, take a look at the Wallet Import Format of your private keys. The ones that begin with the number ‘5’ indicate uncompressed public keys, while those beginning with the letters ‘K’ or ‘L’ respectively indicate the compressed public keys.

I would like to briefly mention that some transactions can avoid fees, if they answer to certain conditions. According to Wikipedia, if transaction is smaller than 1,000 bytes, has outputs greater than 10 mBTC in value AND all of the inputs are of adequate age and value, they are fee free. But be prepared that you would need to wait 5 to 10 days before you could spend these bitcoins. The aim of these restrictions is to keep the spam transactions value as small as possible.

All the bitcoin transaction fees may seem a bit random to you, but in reality they follow clear rules:

  • Bitcoin is a Peer-to-Peer Electronic Cash system. The ‘unspent output’ plays the role of an electronic paper bill. The unspent outputs from one transaction turn into inputs for the next transaction.
  • The taxes issued by the network are based on the transaction’s size in bytes, and not its value in money.
  • Generally the number of inputs determines the size of the transaction and its cost.
  • If one bitcoin’s equivalent is held just for one day, it can be spent without transaction fee.
  • If you spend bitcoins from addressed that have received a big number of small payments, this can issue high fees.
  • Coin control is very helpful when you are combining a large number of unspent outputs from smaller transaction to you.

Different Ways of Earning Bitcoins Online Explained

Being a digital currency of great value, the Bitcoin is used much more often instead of dollars or euros. It is no secret that people are mining for Bitcoins, nearly as if mining for gold. It’s probably one of the newest tendencies that has spread over the world and made a great number of computer geeks, or even some not so technology orientated people, get themselves into the Bitcoin mining. The currency is still young and has a lot of progress ahead, so if you too have heard the stories of people getting a huge profit from a modest Bitcoin investment, it’s still not too late to achieve the same or similar result yourself. There are certain risks of course, but if you are serious about that new adventure and do things right, it is worth trying, because it’s definitely rewarding at the end.

Now let’s pay a bit more attention to the question of how to earn Bitcoins. Theory says, that basically if you can get paid for a certain service or product in the national currency, then you can get paid for the same thing in Bitcoins.

I will quickly list and explain a few things you could do to earn Bitcoins.

The first one is of course, the one we have all heard about, it follows right after we hear the word Bitcoin, is mining. Now, get rid of that picture in your head of people going to an underground cave and mining Bitcoin ore. The actual mining we are talking about here happens entirely on a computer. The concept here is that you and everyone else who is mining, are in a competition of whose computer is first going to solve a particular mathematical problem using certain algorithms. Whoever comes up first with the solution, is being rewarded with Bitcoins. Now, you might think that it would take a few seconds for the computer to solve the problem, but that is not entirely the case. Even more, Bitcoin mining is constantly evolving and people have even started building up special computer configurations to be used specifically for mining. Of course, as the problem solving speed becomes faster, the difficulty of the problems has also increased, so now it takes more time and effort to solve them.

Reading so far, you should already know that you can’t just start mining from your simple home PC and expect enormous profit in return. The amount of money that people and companies have invested into mining equipment has probably reached millions by now and it’s going to be very difficult to compete with them with your simple hardware. But let’s say you have got everything you need, then comes the electricity bill. The amount of power that your hardware would use to solve all sorts of problems would increase, and you will be unlikely to make any profit out of it. Or it would at least take you months to gain something in return, if we should be more positive about it. Your best bet is probably to find a place where you could use some ‘free’ electricity in an unnoticeable fashion.

Everything starts with a research, if you are determined to bring it to e successful outcome. You should be familiar with the following terms:

  • Return On Investment (ROI) is the amount of time that it would take you before you start making profit from mining. Depending on the case, this may or may not include the resources you have spent on shipping, electricity and other fees.
  • Hash is the number of calculations the minor runs per second. The hash units go from Kilohash to Petahash per second.
  • Watt (W), for the ones of you who have never heard about it, measures the amount of electricity that you use. Your electricity bill will be of course higher with the higher wattage that you use for mining.
  • Application-Specific Integrated Circuit (ASIC) is an electronic chip designed for a specific application. The ASIC computer chip sets posses enough power needed for Bitcoin mining. Their production has also proportionally increased with the growing interest for Bitcoins.
  • Algorithms are being used by each different digital currency. The one that Bitcoin uses is called SHA-256.

The next method, apart from mining, to earn Bitcoins would be to find work and get paid in Bitcoins, the same way as you were going to be paid in any other currency. Since the Bitcoin is still a young currency, and we mentioned that a lot of companies have already invested in buying expensive equipment for mining, you can start work in one of them. OR you could try to find freelance work for which you would be paid in Bitcoins. There are number of websites where you could find work according to your individual abilities. Both ways, you would gain a lot of useful experience to even start a project of your own a bit later. The important thing here is to stay consistent and serious about the tasks that you have taken.

If your business orientated, but you don’t want to risk too much, you can set up an online store to sell your product, or resale somebody else’s product and integrate the option for payment in Bitcoins. One of the most widespread Bitcoin payment processors is BitPay. I would surely recommend it to you, since it’s by far well-known and used by thousands of users. Another of it’s advantages is that it can be integrated not just online, but in physical stores too.

So, these are the main ways to start earning Bitcoins. One is not necessarily more successful that the other. It all depends on your personal approach towards the methodology here. If you have devoted enough of your time for research about the newest tendencies in the field of Bitcoins before getting yourself into it, there is no reason for you not to succeed. If you on the other hand have decided to apply for a job, be confident and don’t despair if you get denied the first time. There is a big future for the Bitcoin currency and if you use its potential wisely, it would help you grow.

How to Sell Bitcoins Online and Make Money from Trading?

If you are reading this, you have probably figured out yourself that selling bitcoins isn’t as simple or easy as buying them. I am here to give you the basic information that you need to turn your digital currency into cash.

Selling bitcoins online is naturally the more common way to trade this type of currency, especially if it’s a non-physical, electronic currency. There are three sub-methods when it comes to how to sell bitcoins online.

The first one includes direct trade with the buyer or a mediator to finalise the deal. There are number of website that offer a selling platform which you can use to find buyers or be found by them. These are structures such as LocalBitcoins and Coinbase in the US, Bittylicious and BitBargain in the UK. Whichever site you choose, you would need to register as a seller, an action that involves verifying your identity. Once you’ve got your account all set up, you can post what you want to sell and receive a notification when there’s a buyer interested in your offer. You can message with the buyer, but you can complete the deal only trough the website.

I have to warn you that the process of selling on these websites may require a bit more of your time and patience than you would expect, but the support that you get there is great and valuable, which is only in favor of the whole experience. But I would hint you just a little here, if you are based in the United States, you might go directly for Coinbase as your selling platform, which is known for it’s simplicity and lightness of work.

Exchange trades is the second sub-method to use to sell your bitcoins online. It still involves registering and verifying your identity, but this time you don’t need to spend so much time organising the sale. The exchanges have taken the role of mediator that holds everyone’s funds. What is required of you is to place your ‘sell order’ where you state the amount and type of currency you wish to sell and the price per unit you wish to sell it for. When someone offers a matching buy order, the exchange will finalise the deal for you. Shortly after that, your account will be credited with the according currency.

There is a bit of a downside to all that, despite the ease of use. The thing is, if you are selling bitcoins for flat currencies, you would then need to withdraw your funds to your bank account. At times, it would take longer time to receive your funds, if the exchange has liquidity problems or issues with its banks. Decide for yourself how fast do you prefer to receive your payment. But to avoid all this, do a thorough research on the exchange you are about to commit your funds to.

There is also an alternative, that doesn’t necessarily mean that it’s the best one. You can choose to do entirely cryptocurrency exchange and change your bitcoins for another cryptocurrency of your choice and preference. Although, people rarely choose this option and the reason to do so would be for example, if a shop accepts some other currency like litecoin or dogeoin for their goods.

In addition to the information about the exchanges, you have to be of course prepared to pay a fee to use their services. Each of them holds an updated information on their websites about the fees they charge and the different cryptocurrencies they work with. There is also a limit to the amount of money you are permitted to store on your account. It’s not wise to keep all your pots of coins on the exchange network, although it’s indeed easier this way if you are exchanging only digital currencies. But never entirely trust an exchange, because it can by mischance be hacked and you might lose everything you have stored there.

Now moving away from the subject of exchange trades to focus on the last sub-method, and that is the Peer-to-peer trading marketplaces. This is a considerably new invention in the bitcoin society. Websites like Purse.io are set out to create a middle point for two specific groups of people with extra needs to meet. The first group consists of people or individuals who want to buy a particular type of goods or services, but the seller doesn’t trade with bitcoins or any other digital currency. In the second group are the people who are willing to buy bitcoins using their credit or debit card. So here comes the marketplace where those two groups meet, match each other’s requirements and make safe exchange of currencies.

The marketplace is the mediator, who provides users with the platform, bitcoin wallet and executes the transactions against a small fee.

At some point, there come a moment to withdraw your funds, which is undoubtedly supported by some concerns regarding the safety of the transaction. The international wire transfer method is supported by all online bitcoin markets. After you’ve sold your bitcoins you can also choose to transfer the money to your bank account trough the ‘Single European Payments Area’ (SEPA) system. It has been created to grant efficiency of the international transfers between the member states of the European Union. The downside is that transfers take about four days and sometimes hold large charges, which makes trading quite expensive in reality.

Big percent of the bitcoin markets that we mentioned above, require basic information from the buyers, but they require much more proof of identity from the sellers. Bitcoin markets are legally obliged to record who their members are, but most of them are collecting certain information in case of new future regulations. But even if you plan just to be a buyer at the moment, there is no harm in completing the whole procedure of verification of your identity just to get this out of your way in case you later decide to become a seller on the market. Don’t worry if the website requires from you to send them a scan of your identification document (ID card or passport) or even a selfie of yourself holding your ID and the name of the market written on a piece of paper!

After all that you can dive into the buy/sell bitcoin experience.

How to Buy Bitcoins The Right Way and Make Money?

Bitcoin is turning into the currency of the future, with a growing demand, so now more and more people are trying to acquire it. There are a few ways to get yourself some bitcoins, along with the most popular one ‘mining’, but now I’m going to talk to you about how to buy bitcoins.

You can buy bitcoins via exchanges or trough people who are selling them. There are a few options for payment: cash, with credit/debit card, wire transfers or even paying with another cryptocurrency. This would all depend on the conditions under which the trade is being made.

This might come as a surprise to you, but buying bitcoins is actually not as easy as it might seem at first. For example, a transaction made with you credit card or PayPal account can easily be reversed by calling the card company. When you’re trading with this type of digital currencies, where it’s very hard to prove that any goods have changed their owner, most of the traders avoid this payment method.

Despite what’s written above, the options for payment are significantly growing and number of websites are giving their customers the option to pay with cards. For the customers in the US who lack a bank account, there’s a newly launcher service called Expresscoin, where they accept personal checks, money orders and wire transfers too.

Once you purchase your first bitcoins you will need a bitcoin wallet to store them. The ‘wallet’ is actually a type of bank account for bitcoins. You can choose between a software wallet that is stored on your computer’s hard drive, or an online-based service to keep your bitcoins. Some disadvantages can be found in both of them. For example, if you store your bitcoins locally on your PC, you have to make sure that you have a fresh backup of your wallet, if something happens to the drive. The online wallet, despite all the security against virtual intruders, can still be hacked.

The bitcoin popularity is obviously growing with the options for the business to cater new markets. An example here are the exchanges, where you can at the same time trade flat currencies and various types of cryptocurrencies. They are a great and very suitable option if you only want to do regular trading or speculation. For this type of trade you also shouldn’t be too fussy about hiding your identity and you should not mind the long bureaucratic procedures around the setup of you account. Once you have provided the platform with the desired information to prove your identity, everything should continue smoothly. Thеse regulations are set in most countries and no exchange can even try to get around them, because each company has to meet the ‘anti-money laundering’ and ‘know your customer’ requirements. At this time, the largest bitcoin full-trading exchanges are in China, Great Britain and the United States.

Once you’ve set up your account in one of these exchanges, you would need to link it to an existing bank account. This is obligatory if you want to move funds from your exchange account to your bank account via wire transfer. This of course is followed by a certain fee, depending on the conditions you have agreed to. The procedure may also take longer that you have expected, because the delays are much higher when you change bitcoins into flat currency. Regardless of that, it is much better to transfer these funds to your bank account, rather that store them on you exchange profile, which can be hacked (something that does NOT necessarily happen all the time!).

There are also things you should have in mind when using exchanges, online wallets and banks. First, despite all the proof of identity and requirements that you meet,  exchanges aren’t regulated the same way as banks are. Your account has no insurance in case the exchange gets hacked or goes out of business. Unfortunately, bitcoin has yet no legal status as a currency everywhere around the globe and if you happen to be a victim of a theft, the authorities wouldn’t always know how to approach the case. Some exchanges would restore the amount of bitcoins that has been stolen, but for now they don’t have the legal obligation to do it.

I’ll extend the matter to the subject of a theft occurring from your personal wallet. If you don’t thoroughly keep your password and mind the security of your profile, then there is no guaranteed way for you to gain back the funds that have been stolen from you. There is also a certain discrimination on behalf of the banks towards the bitcoin and all other digital currencies. Somehow, they don’t quite fit in their business model and they threat them as a threat. There have been cases of banks refusing transfers to specific exchanges or even closing the accounts of the people who mention bitcoin. So, make sure that the bank you are about to set up you account in is bitcoin-friendly.

There are also face-to-face, or ‘over-the-counter’ (OTC) trades. Some websites provide a platform where buyers and sellers can negotiate the price they want to trade their currencies at and meet up face-to-face. This ways you can avoid all the fuss around creating and verifying your online identity and finally getting back to business. But if you choose this type of trade, please make sure that you meet with the other person in an open and crowded place. You don’t want to be going to some stranger’s home carrying a lot of cash with you. Also, you would need to have access to your bitcoin wallet during the meeting. To confirm the transaction you would need to bring your smartphone, tablet or laptop, and also have live Internet access.

There is another a relatively new concept trying to gain more popularity and that’s the bitcoin ATMs. The system there is similar to the face-to-face exchange, only that it happens with a machine on the opposite side. And this is how it works: you insert your cash and then scan your mobile wallet QR code or you can receive a paper with the codes that you need to load the bitcoins onto your bitcoin wallet. The exchange rates here are likely to vary from 3-8% over the standard exchange price.

There are plenty of options and platforms that you can use to buy bitcoins. It’s not as simple and easy as it may sound of course, but most of the websites are very user-friendly and provide you with detailed instructions regarding their use. There is always a customer support that you should not forget about in case you feel in trouble or worry about the safety of your funds.

What is Bitcoin and Why You Should Use It Everyday?

Bitcoin is another alteration of money created by our digital age. They are transferred directly from person to person through the Internet without going through a bank. They posses some great advantages, such as low fees, you can use them in every country and your account cannot be frozen. You can use them to buy whatever you want electronically, so basically they are being used instead of the euros, dollars or yen.

What’s important to point out is that there is no institution that manipulates the Bitcoin production and supply and the happening transactions are cryptographically verified – something called Bitcoin mining. It is far more secure than banking transactions. Hackers have tried to crack the Bitcoin algorithm and find its flaws, but it has proved to have no weaknesses so far. The currency is transferred between the users by a peer-to-peer network that is actually managed by themselves. All the so called “Bitcoin miners” are using computers and software for solving complex algorithms for the Bitcoin transactions.

An undoubted  advantage of the Bitcoin is the extremely low risk of collapse. It’s very simple: the stability of your government determines the stability of your official currency. So if the government falls, the currency often becomes worthless. While the Bitcoin is not linked to any national currency, you can be sure that your funds are safe.

A lot of Bitcoin users have soon reached the realisation or conclusion that they can operate with that currency absolutely anonymously, making the financial institutions useless to their trade. But there is of course a certain limit to the amount of Bitcoins in circulation and it’s 21 million. It becomes more difficult to mine Bitcoins as more Bitcoins are generated. It was calculated that the maximum number will be reached roughly by the year of 2140, which gives enough time for the Bitcoin Renaissance to bloom. This whole concept means Bitcoin’s value increases with the number of people using them.

It’s close to mind that this whole system cannot exist without a public ledger (called in this case “Blockchain”) to record and verify public transactions. This is where you can check each Bitcoins owner’s holdings. The ledger is open to anyone for access, which grants transparency and predictability to the currency. In these conditions it is really hard to become a victim of a fraud or same Bitcoins to be double-spent.

There are two ways to become an owner of a certain amount of the digital currency and they are though Bitcoin mining and/or exchange. It is true that it’s not widely accepted, but the number of merchants and retailers on the web is growing up significantly. I am sure that most of you have been introduced to systems such as PayPal for example. Same way, there are Bitcoin digital wallets, which purpose is to store your private passwords and addresses, and to grant anonymous and safe transfer of Bitcoins between users. But if you lose your secret key and Bitcoins get once stolen by a hacker or lost in result of hardware mischance, they can’t be recovered. Your Bitcoins would be out of circulation and no government agency would pay you back any refund.

If we have to sum it up, Bitcoins are the perfect currency to use to safely buy goods and services on the Internet. First, because the transaction fees are minimal compared to the ones set by the credit card payment networks and you get to keep your privacy at the same time. On the other hand, the public ledger and it’s accessibility by everyone interested, encourages miners and traders to do fair business among each other.

But as the currency’s popularity is growing, as well as its public acceptance, its price is very sensitive towards different government regulations and eventual restrictions that might have negative impact.

So, if you are serious enough to start mining for Bitcoins, there are few things that you need to know in order to make the best use of your money and buy the right equipment, so that you have profit later. As we mentioned earlier, mining itself means solving complex cryptographic puzzles. Bitcoins come as a reward for the “proof of work” that has been done. Speaking generally, there are two more common proof-of-work hashing algorithms called SHA-256 and Scrypt.

With SHA-256, at the dawn of Bitcoin era, you could effectively mine with the CPUs and GPUs that are to be found in every common home PC. Right now, everything has leveled up and you will need specialised processors known as “Application Specific Integrated Chips” (ASICs) for Bitcoin mining. The increasing difficulty of Bitcoin mining has created the need of more and more powerful processors. It’s a constant race, which sometimes means that even the most recent chips can become outdated on the next day.

Scrypt algorithm on the other hand, benefits from higher amount of RAM and parallel processing ability at the same time. This is why there is still a lot of way to go for the GPU-based rigs.

After a not so short consideration on your budget, you would have to consider whether to build your mining system from your own PC or create a do-it-yourself mining rig. While ASICs most of the times are ready made by the manufacturers and produced in USA in most of the cases, they are normally more expensive that the DIY rigs. Let’s not forget about the amount of money they are going to cost you if you have to place your order from far across the globe.

Another really important thing that has to be taken under consideration is that mining requires electricity. So don’t go cheap here, but invest in a good and efficient power supply and take under account the power requirements of the rest of your components. That would definitely add up to your electricity bill, and if you don’t at some point start earning more than you spend, then there’s obviously something you are not doing right.

So, to gain a bit of extra security about your profit, you can try joining in with other miners and combine your resources. Also, if you need some sort of assistance to calculate the eventual profit, there are online calculators, created for Bitcoin miners especially. There you can enter various parameters like your costs on equipment, power consumption, as well as the current Bitcoin price and others.