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Some exchanges and services (e.g. CoinBase, Bitstamp) pay for the transaction fees for their customers when the customers send bitcoins from their wallet/account.

They might have tens of thousands of transactions going out of customers wallets everyday. The 0.0001btc fees might add up really quickly and become a large cost to them.

Are they making transactions wait so that they can send to many at once? If they have enough transactions going out this might work as the customer won't feel a few seconds of delay.

Or do they create a unique transaction for each? If so, how can they afford it?

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They can avoid the fees in two ways.

First, they can choose to batch multiple small transactions together into a single transaction with multiple outputs.

Second, since they have a large pool of bitcoins, they can more easily form transactions that qualify to be free transactions, for payouts over 0.01 BTC.

The most efficient way to form these free transactions would be to make a transaction that's nearly 1000 bytes, and is sent from inputs that destroy 4 Bitcoin days (e.g. a 4-day old 1 BTC input, or 2-day old 2 BTC input). This will ensure that it meets the priority requirements.

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  • I made this a community wiki so that someone that understands what I refered to as "old" funds better can go ahead and fix/clarify that point. Thanks.
    – dchapes
    Nov 25, 2013 at 22:41
  • Batching was my initial guess too. But that has to bring some delays to transactions. If you've used their service, can you tell me if you ever experienced delays? I know what you mean by old funds. The less transaction history a transfer has, the smaller the input and less the fee. IS this a solution to people who might abuse their service though?
    – Emre Kenci
    Nov 25, 2013 at 22:48
  • I know Bitstamp does batching and that causes delays btw
    – Emre Kenci
    Nov 25, 2013 at 22:53
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Coinbase charges a 1% fee every time someone uses them to buy and sell bitcoins. This adds up to a large profit. They use some of this profit to pay the transaction fees for their customers and still have a lot left over.

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  • True. But it's also a wallet service. So not all of their customers are necessarily buying or selling. Do you think most of their customers are buyers/sellers? I was thinking maybe there could be a technical explanation? Also, don't you think this could be abused? If I'm paying out 100 transactions each day with btc, I'm definitely using their wallet. Is there some sort of limit? Thanks for the answer.
    – Emre Kenci
    Nov 25, 2013 at 22:35
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Most of bitcoin exchange hold client funds in their bitcoin address (HOT WALLET). THe trading between member is happen only in WEB VIEW and only by script. Because the real funds is sitting in exchange owned bitcoin address and only transferred to both of trader IF anyone making any withdrawals from the exchange.

Any comment on this statement? Am i right about this?

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    The question was about withdrawing Bitcoins fees and not trading fees.
    – Jan Moritz
    Jul 26, 2014 at 12:29

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