Reference :

Bitcoin and Cryptocurrency Technologies

Arvind Narayanan, Joseph Bonneau, Edward Felten, Andrew Miller, Steven Goldfeder with a preface by Jeremy Clark

Q) Transaction fees.(pg no: 129)

1. Alice has a large number of coins each of small value v, which she would like to combine into one coin. She constructs a transaction to do this, but finds that the transaction fee she’d have to spend equals the sum of her coin values. Based on this information (and the default transaction fee policy specified in slide 50), estimate v?

2. Can Alice somehow consolidate her coins without incurring any transaction fee under the default policy?

3. Compared to a fee structure that doesn’t factor the age of the inputs into the transaction fee, what effect might the current default fee structure have on the behavior of users and services?

Current default transaction fees. The current transaction fees that most miners expect are as follows:

first of all, no fee is charged if a transaction meets all of these three conditions:

1. the transaction is less than 1000 bytes in size,

2. all outputs are 0.01 BTC or larger

3. priority is large enough

Priority is defined as: (sum of input age * input value) / (transaction size). In other words, look at all of the inputs to the transaction, and for each one compute the product of that input’s age and its value in bitcoins, and add up all those products. Note that the longer a transaction output sits unspent, the more it ages, and the more it will contribute to priority when it is finally spent.

If you meet these three requirements then your transaction will be relayed and it will be recorded in the block chain without a fee. Otherwise a fee is charged and that fee is about .0001 BTC per 1000 bytes, and as of 2015 that's a fraction of a U.S. penny per 1000 bytes. The approximate size of a transaction is 148 bytes for each input plus, 34 bytes for each output and ten bytes for other information. So a transaction with two inputs and two outputs would be about 400 bytes.

The current status quo is that most miners enforce the above fee structure, which means that they will either not service or will service last transactions that don't provide the necessary transaction fees. But there are other miners who don't enforce these rules, and who will record and operate on a transaction even if it pays a smaller fee or no fee at all.

If you make a transaction that doesn't meet the fee requirements it will probably find its way into the block chain anyway, but the way to get your transaction recorded more quickly and more reliably is to pay the standard fee, and that's why most wallet software and most payment services include the standard fee structure in the payments that go on, and so you'll see a little bit of money raked off for transaction fees when you engage in everyday Bitcoin business.

BTC means 1-bitcoin