Who gets the money and what is it for?
If you have bought, send or received bitcoin you have realized that there is a small fee that gets deducted from your original amount or charged separately in the case of trading through exchanges.
Why is this? Why are they taking your precious Satoshis away from you?
Worry no more, today I’m going to explain to you everything that is happening behind the scenes and why your Satoshis just disappeared and how this is going to affect you as a bitcoin user going forward.
Before we dive deep into bitcoin fees, let me tell you a story about my friend Jessica from the UK who has always dreamt of going to Japan. Shes had always been fascinated by my Anime and Ancient Japanese culture Samurai Geisha and all that kind of stuff. The problem is Jess has never been out of her home country and speaks no single word of Japanese even simple Konichiwa, but that’s a story for another day.
I know you are now wondering. What does this story have to do with bitcoin anyway? Please indulge me for a minute we will be getting back to bitcoin in a minute.
So what does Jess do? You guessed it right. Just like any other astute traveler will do, she goes to a travel agent who promises her safety, security the adventure of her lifetime and an unlimited supply of Sushi. Since she doesn’t have vast amounts of cash, she asks the travel agency for the cheapest travel package possible.
The day is finally here let’s go to Japan!
Isn’t this supposed to be about bitcoin transaction fees? Thanks for reminding me. In Bitcoin, we have travel agents too I mean not literally, but we call them Miners.
Miners? Seriously, like Gold miners? Who are these guys?
In bitcoin transactions just like in Jessica’s travel adventures, you don’t know who you are dealing with on the other side of the transaction that’s why we need these miners to anonymously and automatically verify the transactions and keep the blockchain safe and secure. In the same way, Jessica paid the travel agency bitcoin Miners are incentivized through transaction fees.
I know you are itching to know what happened to Jessica .so let’s get back to Jessica adventures we will be back to bitcoin in a short while.
Meanwhile, at the Airport, Jessica is excited with her plane ticket ready to board and travel to Japan with her tour guide right by her side and a bunch of other excited travelers. There is lots of excitement in the air, and random Japanese words can be heard from a distance Konichiwa, Arigato, and the like.
Then the unexpected happens
The boarding announcement blasts through the speakers. First class passengers are now boarding! Jessica jumps to the front of the line just to be stopped and told that she can’t board because she had a Coach ticket.
The equivalent of this In bitcoin is called broadcasting a transaction to the network.
Her tour guide explains to her that with her kind of ticket she cant board first class and that she has to wait for her turn probably the last lot.
Jessica is very disappointed and goes back to the boarding lobby to wait for her turn as she watches the first class passengers board.
Let Jessica rest at the Lobby we will be back to her shortly.
Once transactions are broadcast to the network nodes which are just dudes running sophisticated bitcoin software on their computers, they are then sent to the MEM pool.
MEM pool?Whats MEM pool? And what happened to Jessica is she still at the boarding lobby?
I’m glad that you asked MEM pool which is the short form for memory pool is the boarding lobby for bitcoins where they wait before they are picked by miners to be broadcast to the network.
Once in the mem pool, the Miners just like Jess’s plane boarding pick the transaction according to transaction fees. The higher the transaction fees, the faster the bitcoin boards the blockchain. Yes! We have first-class bitcoins too.
I know what you are thinking. Oooh, this is not fair. Yeah, I know life is not balanced either, so they say. So the high transaction fee Bitcoins(first class) gets grabbed first by the miners verified and put in the next block on the blockchain. So the higher the transaction fees, the faster the transaction and vice versa.
Hey, Jess don’t Dozz off at the lobby. Time to board!
Eventually, we all get to board because the plane can’t fly unless all the passengers are on board just like in Bitcoin, there is always a block every 10 minutes.
Bon Voyage, Jessica! Sorry, that’s not Japanese I think the right word will be Itte rashai!