Someone recently asked me what a txn is and why the fees vary. Actually, this is quite important if you want to understand how Bitcoin works.

Basically, a txn (transaction - a transfer) on the Bitcoin blockchain has fees determined by two main factors. First is the size of the transaction, measured in virtual bytes or vB. Second is the fee rate you choose to pay — the higher the fee, the faster it gets confirmed.

The good thing is you have full control over how much fee to pay. Currently, the minimum fee is set at 1 sat/vB, but if you want faster confirmation, you can pay a higher rate.

One thing to note: if you add more inputs (fund sources) or outputs (recipient addresses) to your transaction, its size will increase. This means the total fee will also be higher, since fees are calculated based on the transaction size multiplied by the fee rate you select. That’s why traders often try to optimize the number of inputs and outputs to reduce fees.