diff --git a/src/cryptonote_config.h b/src/cryptonote_config.h
index 66084da3..175a5d26 100644
--- a/src/cryptonote_config.h
+++ b/src/cryptonote_config.h
@@ -64,6 +64,8 @@
 
 #define FEE_PER_KB_OLD                                  ((uint64_t)10000000000) // pow(10, 10)
 #define FEE_PER_KB                                      ((uint64_t)2000000000) // 2 * pow(10, 9)
+#define DYNAMIC_FEE_PER_KB_BASE_FEE                     ((uint64_t)2000000000) // 2 * pow(10,9)
+#define DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD            ((uint64_t)10000000000000) // 10 * pow(10,12)
 
 #define ORPHANED_BLOCKS_MAX_COUNT                       100
 
@@ -122,6 +124,8 @@
 
 #define THREAD_STACK_SIZE                       5 * 1024 * 1024
 
+#define HF_VERSION_DYNAMIC_FEE                  4
+
 // New constants are intended to go here
 namespace config
 {
diff --git a/src/cryptonote_core/blockchain.cpp b/src/cryptonote_core/blockchain.cpp
index 9ea023a4..c92ee6c9 100644
--- a/src/cryptonote_core/blockchain.cpp
+++ b/src/cryptonote_core/blockchain.cpp
@@ -46,6 +46,7 @@
 #include "misc_language.h"
 #include "profile_tools.h"
 #include "file_io_utils.h"
+#include "common/int-util.h"
 #include "common/boost_serialization_helper.h"
 #include "warnings.h"
 #include "crypto/hash.h"
@@ -2708,6 +2709,57 @@ void Blockchain::check_ring_signature(const crypto::hash &tx_prefix_hash, const
   result = crypto::check_ring_signature(tx_prefix_hash, key_image, p_output_keys, sig.data()) ? 1 : 0;
 }
 
+//------------------------------------------------------------------
+uint64_t Blockchain::get_dynamic_per_kb_fee(uint64_t block_reward, size_t median_block_size)
+{
+  if (median_block_size < CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2)
+    median_block_size = CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2;
+
+  uint64_t unscaled_fee_per_kb = (DYNAMIC_FEE_PER_KB_BASE_FEE * CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / median_block_size);
+  uint64_t hi, lo = mul128(unscaled_fee_per_kb, block_reward, &hi);
+  static_assert(DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD % 1000000 == 0, "DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD must be divisible by 1000000");
+  static_assert(DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD / 1000000 <= std::numeric_limits<uint32_t>::max(), "DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD is too large");
+  // divide in two steps, since the divisor must be 32 bits, but DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD isn't
+  div128_32(hi, lo, DYNAMIC_FEE_PER_KB_BASE_BLOCK_REWARD / 1000000, &hi, &lo);
+  div128_32(hi, lo, 1000000, &hi, &lo);
+  assert(hi == 0);
+
+  return lo;
+}
+
+//------------------------------------------------------------------
+bool Blockchain::check_fee(size_t blob_size, uint64_t fee) const
+{
+  const uint8_t version = get_current_hard_fork_version();
+
+  uint64_t fee_per_kb;
+  if (version < HF_VERSION_DYNAMIC_FEE)
+  {
+    fee_per_kb = FEE_PER_KB;
+  }
+  else
+  {
+    uint64_t median = m_current_block_cumul_sz_limit / 2;
+    uint64_t already_generated_coins = m_db->height() ? m_db->get_block_already_generated_coins(m_db->height() - 1) : 0;
+    uint64_t base_reward;
+    if (!get_block_reward(median, 1, already_generated_coins, base_reward, version))
+      return false;
+    fee_per_kb = get_dynamic_per_kb_fee(base_reward, median);
+  }
+  LOG_PRINT_L2("Using " << print_money(fee) << "/kB fee");
+
+  uint64_t needed_fee = blob_size / 1024;
+  needed_fee += (blob_size % 1024) ? 1 : 0;
+  needed_fee *= fee_per_kb;
+
+  if (fee < needed_fee)
+  {
+    LOG_PRINT_L1("transaction fee is not enough: " << print_money(fee) << ", minimum fee: " << print_money(needed_fee));
+    return false;
+  }
+  return true;
+}
+
 //------------------------------------------------------------------
 // This function checks to see if a tx is unlocked.  unlock_time is either
 // a block index or a unix time.
diff --git a/src/cryptonote_core/blockchain.h b/src/cryptonote_core/blockchain.h
index 262c2952..3311798f 100644
--- a/src/cryptonote_core/blockchain.h
+++ b/src/cryptonote_core/blockchain.h
@@ -512,6 +512,33 @@ namespace cryptonote
      */
     bool check_tx_inputs(transaction& tx, uint64_t& pmax_used_block_height, crypto::hash& max_used_block_id, tx_verification_context &tvc, bool kept_by_block = false);
 
+    /**
+     * @brief get dynamic per kB fee for a given block size
+     *
+     * The dynamic fee is based on the block size in a past window, and
+     * the current block reward. It is expressed by kB.
+     *
+     * @param block_reward the current block reward
+     * @param median_block_size the median blob's size in the past window
+     *
+     * @return the per kB fee
+     */
+    static uint64_t get_dynamic_per_kb_fee(uint64_t block_reward, size_t median_block_size);
+
+    /**
+     * @brief validate a transaction's fee
+     *
+     * This function validates the fee is enough for the transaction.
+     * This is based on the size of the transaction blob, and, after a
+     * height threshold, on the average size of transaction in a past window
+     *
+     * @param blob_size the transaction blob's size
+     * @param fee the fee
+     *
+     * @return true if the fee is enough, false otherwise
+     */
+    bool check_fee(size_t blob_size, uint64_t fee) const;
+
     /**
      * @brief check that a transaction's outputs conform to current standards
      *
diff --git a/src/cryptonote_core/tx_pool.cpp b/src/cryptonote_core/tx_pool.cpp
index dba05a53..e72a592c 100644
--- a/src/cryptonote_core/tx_pool.cpp
+++ b/src/cryptonote_core/tx_pool.cpp
@@ -133,12 +133,8 @@ namespace cryptonote
       fee = tx.rct_signatures.txnFee;
     }
 
-    uint64_t needed_fee = blob_size / 1024;
-    needed_fee += (blob_size % 1024) ? 1 : 0;
-    needed_fee *= FEE_PER_KB;
-    if (!kept_by_block && fee < needed_fee)
+    if (!kept_by_block && !m_blockchain.check_fee(blob_size, fee))
     {
-      LOG_PRINT_L1("transaction fee is not enough: " << print_money(fee) << ", minimum fee: " << print_money(needed_fee));
       tvc.m_verifivation_failed = true;
       tvc.m_fee_too_low = true;
       return false;
diff --git a/tests/unit_tests/CMakeLists.txt b/tests/unit_tests/CMakeLists.txt
index b7fdc333..f3658b9f 100644
--- a/tests/unit_tests/CMakeLists.txt
+++ b/tests/unit_tests/CMakeLists.txt
@@ -39,6 +39,7 @@ set(unit_tests_sources
   dns_resolver.cpp
   epee_boosted_tcp_server.cpp
   epee_levin_protocol_handler_async.cpp
+  fee.cpp
   get_xtype_from_string.cpp
   main.cpp
   mnemonics.cpp
diff --git a/tests/unit_tests/fee.cpp b/tests/unit_tests/fee.cpp
new file mode 100644
index 00000000..6f1413c6
--- /dev/null
+++ b/tests/unit_tests/fee.cpp
@@ -0,0 +1,121 @@
+// Copyright (c) 2014-2016, The Monero Project
+// 
+// All rights reserved.
+// 
+// Redistribution and use in source and binary forms, with or without modification, are
+// permitted provided that the following conditions are met:
+// 
+// 1. Redistributions of source code must retain the above copyright notice, this list of
+//    conditions and the following disclaimer.
+// 
+// 2. Redistributions in binary form must reproduce the above copyright notice, this list
+//    of conditions and the following disclaimer in the documentation and/or other
+//    materials provided with the distribution.
+// 
+// 3. Neither the name of the copyright holder nor the names of its contributors may be
+//    used to endorse or promote products derived from this software without specific
+//    prior written permission.
+// 
+// THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND CONTRIBUTORS "AS IS" AND ANY
+// EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
+// MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED. IN NO EVENT SHALL
+// THE COPYRIGHT HOLDER OR CONTRIBUTORS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL,
+// SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO,
+// PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; LOSS OF USE, DATA, OR PROFITS; OR BUSINESS
+// INTERRUPTION) HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT,
+// STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY OUT OF
+// THE USE OF THIS SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
+// 
+// Parts of this file are originally copyright (c) 2012-2013 The Cryptonote developers
+
+#include "gtest/gtest.h"
+
+#include "cryptonote_core/blockchain.h"
+
+using namespace cryptonote;
+
+namespace
+{
+  //--------------------------------------------------------------------------------------------------------------------
+  class fee : public ::testing::Test
+  {
+  };
+
+  TEST_F(fee, 10xmr)
+  {
+    // CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 and lower are clamped
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2), 2000000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 2), 2000000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 100), 2000000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, 1), 2000000000);
+
+    // higher is inverse proportional
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 2), 2000000000 / 2);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 10), 2000000000 / 10);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000), 2000000000 / 1000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(10000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000000ull), 2000000000 / 1000000);
+  }
+
+  TEST_F(fee, 1xmr)
+  {
+    // CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 and lower are clamped
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2), 200000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 2), 200000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 100), 200000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, 1), 200000000);
+
+    // higher is inverse proportional
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 2), 200000000 / 2);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 10), 200000000 / 10);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000), 200000000 / 1000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(1000000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000000ull), 200000000 / 1000000);
+  }
+
+  TEST_F(fee, dot3xmr)
+  {
+    // CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 and lower are clamped
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2), 60000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 2), 60000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 / 100), 60000000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, 1), 60000000);
+
+    // higher is inverse proportional
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 2), 60000000 / 2);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 10), 60000000 / 10);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000), 60000000 / 1000);
+    ASSERT_EQ(Blockchain::get_dynamic_per_kb_fee(300000000000, CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000000ull), 60000000 / 1000000);
+  }
+
+  static bool is_more_or_less(double x, double y)
+  {
+    return fabs(y - x) < 0.001;
+  }
+
+  static const double MAX_MULTIPLIER = 166.f;
+
+  TEST_F(fee, double_at_full)
+  {
+    static const uint64_t block_rewards[] = {
+      20000000000000ull, // 20 monero
+      13000000000000ull,
+      1000000000000ull,
+      600000000000ull, // .6 monero, minimum reward per block at 2min
+      300000000000ull, // .3 monero, minimum reward per block at 1min
+    };
+    static const uint64_t median_block_sizes[] = {
+      CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2,
+      CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 2,
+      CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 10,
+      CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000,
+      CRYPTONOTE_BLOCK_GRANTED_FULL_REWARD_ZONE_V2 * 1000000ull
+    };
+
+    for (uint64_t block_reward: block_rewards)
+    {
+      for (uint64_t median_block_size: median_block_sizes)
+      {
+        ASSERT_TRUE(is_more_or_less(Blockchain::get_dynamic_per_kb_fee(block_reward, median_block_size) * (median_block_size / 1024.) * MAX_MULTIPLIER / (double)block_reward, 1.992 * 1000 / 1024));
+      }
+    }
+  }
+}