Reducing On-Chain Fees

Since transaction fees are offered by users, rather than automatically set by the protocol or by any third parties, the simplest way to reduce on-chain fees is to offer a lower fee rate. Depending on network traffic pressure, this may lead to longer settlement waiting times. If there is high network traffic, meaning the demand for on-chain settlement is high, users who are not in a hurry may benefit from simply waiting until there is lower network usage.

Perhaps the savviest way to reduce fees is to consolidate the UTXOs owned by your wallet during times of low network traffic. Since data size is the most critical factor in forecasting transaction fees, users often pay for the complexity of transactions. In that case, one of the most effective ways to save is to decrease the amount of inputs to a given transaction. However, a side-effect of consolidating UTXOs may be a negative impact on users’ privacy.

Another savvy route to lower transaction fees is to use Bitcoin’s most upgraded wallets and address formats. Spending from these addresses can be packaged more efficiently into the blockchain than in previous formats, allowing miners to add more transactions per block.