Bitcoin Transaction Fees

Transaction fees incentivize miners to include transactions in blocks. Understanding fee dynamics is critical for agents to avoid overpaying or having transactions stuck.

How Fees Work

Fee = Total Input Value - Total Output Value

Fees are implicit—whatever isn’t assigned to outputs goes to miners.

Fee Rate

Fees are priced per virtual byte (vB):

fee_rate = total_fee / transaction_vsize (sat/vB)

Miners prioritize transactions with higher sat/vB rates.

Fee Estimation

API Endpoints

# mempool.space recommended fees
curl https://mempool.space/api/v1/fees/recommended

Response:

{
  "fastestFee": 45,
  "halfHourFee": 35,
  "hourFee": 25,
  "economyFee": 15,
  "minimumFee": 8
}

Fee Tiers

Tier	Target	Typical Use
fastestFee	Next block	Urgent payments
halfHourFee	~3 blocks	Standard payments
hourFee	~6 blocks	Non-urgent
economyFee	1+ hours	Batch consolidation
minimumFee	Eventually	Low priority

Historical Fee Data

# Fee histogram (current mempool)
curl https://mempool.space/api/mempool

# Block fee stats
curl https://mempool.space/api/v1/blocks/tip/fees

Transaction Size Factors

Virtual Size by Input Type

Input Type	vsize per input
P2PKH	~148 vB
P2SH-P2WPKH	~91 vB
P2WPKH	~68 vB
P2TR	~57.5 vB

Base Transaction Overhead

Component	Size
Version	4 bytes
Locktime	4 bytes
Input count	1-3 bytes
Output count	1-3 bytes
Per output (P2WPKH)	31 bytes

Size Calculation Example

P2WPKH → P2WPKH (1 input, 2 outputs):
- Overhead: ~10.5 vB
- Input: 68 vB
- Outputs: 31 × 2 = 62 vB
- Total: ~141 vB

At 20 sat/vB: 141 × 20 = 2,820 sats (~$2.82 at $100k/BTC)

Fee Optimization Strategies

1. Use Efficient Address Types

Address Type	Savings vs P2PKH
P2SH-P2WPKH	~38%
P2WPKH	~54%
P2TR	~61%

Always use SegWit or Taproot addresses.

2. Batch Transactions

Instead of N separate transactions, batch into one:

# Separate: 3 transactions at 141 vB each = 423 vB
# Batched: 1 transaction (1 input, 4 outputs) = ~172 vB
# Savings: 59%

3. Consolidate UTXOs

During low-fee periods, combine small UTXOs:

# Find low-fee windows
if current_fee < historical_average * 0.5:
    consolidate_utxos()

4. Time Transactions

Fee markets fluctuate:

• Lowest: Weekends, late nights (UTC)
• Highest: Weekday mornings, market volatility

Replace-By-Fee (RBF)

RBF allows replacing unconfirmed transactions with higher-fee versions.

Enabling RBF

Set input sequence < 0xfffffffe:

{
  "vin": [{
    "sequence": 4294967293  // 0xfffffffd
  }]
}

RBF Rules (BIP-125)

1. Original must signal replaceability
2. Replacement must pay absolutely higher fee
3. Replacement must have higher fee rate
4. Must pay for bandwidth of both transactions
5. Max 100 unconfirmed descendants

Bumping Fee via API

# Create replacement transaction
# Same inputs, higher fee, optionally same outputs

curl -X POST https://mempool.space/api/tx \
  -d "0200000001..."  # replacement tx hex

Child-Pays-For-Parent (CPFP)

Accelerate stuck transactions by spending their outputs with high fees.

How CPFP Works

Parent TX (stuck at 5 sat/vB, 200 vB)
    ↓
Child TX (spends parent output, pays 100 sat/vB, 150 vB)
    ↓
Combined rate: (5×200 + 100×150) / (200+150) = 45.7 sat/vB

When to Use CPFP

Scenario	Use RBF	Use CPFP
You sent the TX	✓ (preferred)	✓
You received the TX	✗	✓
TX has RBF disabled	✗	✓

Minimum Relay Fee

Transactions below minimum fee won’t propagate:

Default minimum: 1 sat/vB
Dynamic minimum: Based on mempool congestion

Check current minimum:

curl https://mempool.space/api/mempool | jq '.mempoolminfee'

Dust Threshold

Outputs below dust threshold are non-standard:

Output Type	Dust Threshold
P2PKH	546 sats
P2SH	540 sats
P2WPKH	294 sats
P2TR	330 sats

Never create outputs below dust threshold.

Agent Fee Strategy

Decision Tree

1. Is transaction urgent?
   Yes → Use fastestFee + 10%
   No  → Continue

2. Is RBF acceptable?
   Yes → Use hourFee, enable RBF
   No  → Use halfHourFee

3. Can you batch?
   Yes → Batch multiple payments
   No  → Single transaction

4. Monitor mempool:
   If stuck > 1 hour → Bump via RBF
   If receiving → Consider CPFP

Code Example

def calculate_fee(vsize, urgency='normal'):
    fees = requests.get('https://mempool.space/api/v1/fees/recommended').json()

    rate_map = {
        'urgent': fees['fastestFee'],
        'normal': fees['halfHourFee'],
        'economy': fees['economyFee']
    }

    rate = rate_map.get(urgency, fees['halfHourFee'])
    fee = vsize * rate

    # Add buffer for fee fluctuation
    return int(fee * 1.1)

Fee Market Monitoring

Real-Time Mempool Stats

# Mempool size and fees
curl https://mempool.space/api/mempool

# Projected blocks
curl https://mempool.space/api/v1/fees/mempool-blocks

Response Example

{
  "count": 45000,
  "vsize": 85000000,
  "total_fee": 12500000000,
  "fee_histogram": [[25, 1500000], [20, 3000000], ...]
}

---

Machine-Readable Summary

{
  "topic": "bitcoin-fees",
  "fee_unit": "sat/vB",
  "estimation_api": "https://mempool.space/api/v1/fees/recommended",
  "optimization_strategies": ["segwit", "batching", "consolidation", "timing"],
  "acceleration_methods": ["rbf", "cpfp"],
  "dust_thresholds": {
    "p2pkh": 546,
    "p2wpkh": 294,
    "p2tr": 330
  }
}