Last checked 31 October 2026. Fee rates change block by block. The figures in the example are for illustration only. If anything here conflicts with the linked source, the source wins.
Every bitcoin transaction pays a fee to the miner who includes it in a block. The fee does not depend on the amount sent. It depends on the size of the transaction in virtual bytes (vB) and on the fee rate, in satoshis per virtual byte, that the sender chooses. When many people want to transact, the rate needed to confirm quickly goes up.
Fee = size in vB x fee rate in sat/vB
Size depends mostly on the number of inputs (the coins being spent) and outputs (the payments and change).
Source: Bitcoin BIPs: BIP 141: Segregated Witness (consensus layer), Bitcoin developer documentation: Transactions guide: public keys, private keys and signatures, Bitcoin Optech: Topic: fee estimation.
Coins are UTXOs
A wallet does not hold one balance. It holds separate unspent outputs, or UTXOs, one for each payment received and each piece of change. To pay someone, the wallet spends one or more UTXOs as inputs. In a 2 of 3 multisig each input carries two signatures and the script, so each input is several times larger than an output. A wallet holding many small UTXOs pays more to spend them.
Source: Bitcoin developer documentation: Transactions guide: public keys, private keys and signatures, Bitcoin BIPs: BIP 11: M of N standard transactions (multisig), Bitcoin Optech: Topic: coin selection.
Interactive example
Fee for a 2 of 3 multisig payment
Assumes native SegWit 2 of 3 multisig inputs (about 104.5 vB each), 43 vB outputs and about 10.5 vB of fixed overhead. Real sizes vary by a few bytes; other wallet types differ. Check with your wallet before sending.
Consolidate now or spend later?
Compares spending many small UTXOs in one payment later, against combining them first at a low fee rate and then spending a single input.
Source: Bitcoin Optech: Transaction size calculator.
Consolidation
Consolidation means sending many small UTXOs to a new address in your own wallet when fee rates are low, so that later payments need fewer inputs. Bitcoin Optech published a 2018 field report from a bitcoin company that consolidated about 4 million UTXOs while fees were low, to prepare for the next time fees spiked. The same report notes that if fees do not rise, consolidating costs slightly more than doing nothing. The trade-offs:
- Privacy: spending UTXOs together shows on the public ledger that they belong to the same owner. The white paper notes this.
- Timing: it only saves money if the rate now is lower than the rate you would pay later.
- Checks: it is still a transaction. Check the destination is your own wallet on each signing device, as for any payment.
Source: Bitcoin Optech: Field report: UTXO consolidation (30 July 2018), Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System (white paper, 31 October 2008, PDF).
If a payment is stuck
A transaction with too low a fee rate can wait unconfirmed. Two tools exist: replace by fee, where the sender signs a replacement paying a higher fee, and child pays for parent, where the recipient or the sender spends the unconfirmed change with a high fee so miners take both. Your wallet's support for each varies.
Source: Bitcoin BIPs: BIP 125: Opt-in full replace-by-fee signalling, Bitcoin Optech: Topic: child pays for parent (CPFP).
Fee budgeting
- Plan payments that are not urgent for quieter periods, using a public fee estimate.
- Ask customers and providers to send fewer, larger payments where you can.
- Keep a yearly budget line for network fees, including drills, test payments and consolidation.
- Record each fee: it is part of your accounting records, and in the US a fee paid in bitcoin is itself a disposal for tax.
Source: mempool.space: REST API documentation: block height, hash rate, difficulty adjustment and fee estimates, IRS: Digital assets, eCFR: 26 CFR 1.1001-7(b)(1)(ii): digital assets used to pay transaction costs are a disposition.
Read next
- How a transaction works, inputs, outputs and confirmations.
- Sending bitcoin safely, checks before every payment.
- Custody cost calculator, fees as part of the yearly cost.
Sources
Primary sources only. Each link was checked on 31 October 2026. Rules change, so confirm the current version with your adviser.
- Bitcoin BIPsBIP 141: Segregated Witness (consensus layer)
- Bitcoin developer documentationTransactions guide: public keys, private keys and signatures
- Bitcoin OptechTopic: fee estimation
- Bitcoin BIPsBIP 11: M of N standard transactions (multisig)
- Bitcoin OptechTopic: coin selection
- Bitcoin OptechTransaction size calculator
- Bitcoin OptechField report: UTXO consolidation (30 July 2018)
- Satoshi NakamotoBitcoin: A Peer-to-Peer Electronic Cash System (white paper, 31 October 2008, PDF)
- Bitcoin BIPsBIP 125: Opt-in full replace-by-fee signalling
- Bitcoin OptechTopic: child pays for parent (CPFP)
- mempool.spaceREST API documentation: block height, hash rate, difficulty adjustment and fee estimates
- IRSDigital assets
- eCFR26 CFR 1.1001-7(b)(1)(ii): digital assets used to pay transaction costs are a disposition
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