Every transaction consumes existing unspent transaction outputs (UTXOs) as inputs and creates new outputs. An input must be spent entirely, so if you hold a 0.4 BTC output and pay 0.1 BTC, the transaction creates a 0.1 BTC output for the recipient and a change output back to you.
The fee is not stated in the transaction. It is the difference between total input value and total output value, and the miner claims it. Because block space is limited by weight, miners generally prioritise transactions offering the highest fee per virtual byte (sat/vB).
That is why sending the same amount twice can cost different fees: a payment funded by seven small UTXOs is physically larger than one funded by a single UTXO, so at the same sat/vB rate it costs more.
A transaction with zero confirmations is a broadcast intention. One confirmation means it is in a block; each further block deepens it. Merchants choose a confirmation threshold based on the value at stake.
Explain more simply
Your wallet does not hold a number. It holds pieces of bitcoin you received, like banknotes of odd denominations.
To pay someone you spend whole pieces and get change back. More pieces means a bigger transaction, and bigger transactions cost more to confirm.
Real-world analogy
Paying a €7 bill with a €50 note: you hand over the whole note and receive change. A pocketful of coins would settle the same bill but takes longer to count.
Key facts
- Fee = total inputs − total outputs, in satoshis.
- Fee rates are quoted in satoshis per virtual byte (sat/vB).
- Confirmation times are probabilistic. No estimate can be a guarantee.
Common misconception
“The fee is a percentage of the amount you send.”
The fee depends on the size of the transaction in virtual bytes and the current competition for block space, not on the amount being transferred.[3]
Go deeper
Virtual size is weight divided by four. Segregated Witness moved signature data into the witness, which is discounted, so native segwit inputs are cheaper to spend than legacy ones.
Fee estimates are predictions about a competitive auction that has not happened yet. Replace-by-fee (BIP-125) and child-pays-for-parent exist precisely because those predictions can be wrong.
Quick check
Answer every question correctly (100%) to complete this lesson.
1.What determines the fee of a Bitcoin transaction?
2.What is a change output?
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Extra exam questions
Every question here counts towards your accuracy, XP and rank. No guessing: every answer is explained.
Quick check
Answer every question correctly (100%) to complete this lesson.
1.What does UTXO stand for?
2.How does Bitcoin track ownership of coins?
3.What happens to a UTXO when it is spent in a transaction?
4.What is a 'change' output in a Bitcoin transaction?
5.How is a Bitcoin transaction fee determined?
6.Why might a transaction with a higher fee be confirmed faster?
7.What is the mempool?
8.What is a block's maximum weight limit in weight units?
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Sources
- Bitcoin developer documentation, bitcoin.org / Bitcoin Optech glossary
- Bitcoin Improvement Proposals, bitcoin/bips repository
How proposed rule changes are written, discussed and specified. A BIP is not an adopted rule.
- mempool.space REST API, mempool.space (open source)
Live block, mempool, fee, mining and Lightning figures shown on this site come from this API.