1

if I set a transaction fee from multibit for example, is it a fee I'm paying or is it a fee that the other party is paying; and to whom does that fee go to?

3

The fee goes to the miners and is deducted from your wallet. Including a fee in your transaction improves the chance that your transaction will quickly be included in a block.

3

wiki

The transaction fee is an incentive on the part of the bitcoin user to make sure that a particular transaction will get included into the next block which is generated.

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