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Lightning, a payment network built for Bitcoin.Credit: Official brand mark via Simple IconsOriginal sourceLicenseAll image credits

Bitcoin transaction fees are not fixed by the amount of money sent. They depend mainly on the transaction’s data size and competition for limited block space.

How on-chain fees work

Wallets estimate a fee rate based on current network demand and the desired confirmation speed. A transaction that spends many previous outputs can use more block space than a simple transaction and may therefore cost more.

A higher fee can make a transaction more attractive to miners, but it cannot guarantee a particular confirmation time. Good wallets show an estimate before the user approves the transfer.

On-chain fees pay for scarce block space

Wallets compete for inclusion by attaching fees based largely on transaction size in bytes and current demand, not simply the amount of bitcoin being sent.

What Lightning changes

The Lightning Network uses payment channels to move many payments without recording every intermediate transfer directly on the Bitcoin blockchain. Opening or closing a channel still relies on on-chain transactions.

Lightning can make small and frequent payments faster and less expensive, but it adds its own concepts, including channels, liquidity, routing, and wallet availability. It complements the base network rather than replacing it.

Lightning moves repeated activity off the base chain

Payment channels can support many small transfers without recording every payment as a separate Bitcoin transaction. Opening, managing, and closing channels introduces a different workflow.

Sources

  1. Bitcoin.org — Frequently asked questions
  2. Bitcoin.org — Bitcoin for individuals