Financial transactions around the globe are beginning to be affected by the advent of cryptocurrency. In the years since the first Bitcoin was purchased in 2009 and the introduction of over 10,000 cryptocurrencies worldwide, the number of people regularly utilizing crypto has exploded.
How much does it really cost to trade and use cryptocurrency, despite the fact that crypto promises lightning-quick transactions and cheap fees?
We have discussed a variety of cryptocurrency transaction fees, including how much you can anticipate paying, what aspects to take into account while paying fees, and how to save money on crypto transaction fees.
What Are the Costs of Cryptocurrency?
The fees associated with a cryptocurrency transaction will vary based on the nature of the transaction, the platform you’re using, and the cryptocurrency you’re exchanging it for. For the most part, bitcoin transaction fees are calculated as a proportion of the total amount sent, and there may be additional fees associated with completing a transaction directly on the blockchain network.
Fees for buying and selling cryptocurrencies on an exchange can be as low as 0% and as high as 5% or more, depending on the total value of the trade.
Network fees for executing trades on a DEX can add another 1% to the total cost of a trade. These network fees, depending on the network, might easily reach $100 or more during peak network usage times. To sum up, bitcoin costs can be anything from surprisingly low to prohibitively high.
Alternative Cryptocurrency Fees
The costs of using a cryptocurrency are supposed to go to the people or organization maintaining the network via which the currency is transferred.
Today, more than a decade later, there are many different kinds of cryptocurrency fees, including those associated with buying and selling, using the network, and storing cryptocurrency in a wallet.
In the following sections, we’ll explain the various crypto fees and how to avoid overpaying for them.
Exchanges for buying, selling, and trading cryptocurrencies have risen to prominence as the most common method of doing so. Although fees may fluctuate from exchange to exchange, most use a Maker-Taker model for setting prices.
Orders from market makers are placed in the order book, and orders from takers are filled from the order book. Makers often pay a lower cost compared to takers, and most price structures provide reductions for customers who transact more frequently each month.
See a sample of Coinbase Advanced’s pricing structure here:
|30-Day Volume (USD)||Maker fee||Taker fee|
|$10K to $50K||0.25%||0.40%|
|$50K to $100K||0.15%||0.25%|
|$100K to $1M||0.10%||0.20%|
|$1M to $20M||0.08%||0.18%|
|$20M to $100M||0.05%||0.15%|
|$100M to $300M||0.02%||0.10%|
|$300M to $500M||0.00%||0.08%|
In this illustration, the highest fees are paid by traders who execute less than $10,000 in monthly trading volume, while the fees are decreased for traders who execute greater volumes. Fee discounts are offered to market makers in order to entice them to trade, which in turn increases the exchange’s liquidity.
Here’s another one from Kraken, a cryptocurrency exchange that provides cheaper trading fees to its “Pro” platform users:
|30-Day Volume (USD)||Maker fee||Taker fee|
|$0 to $50,000||0.16%||0.26%|
|$50,001 to $100,000||0.14%||0.24%|
|$100,001 to $250,000||0.12%||0.22%|
|$250,001 to $500,000||0.10%||0.20%|
|$500,001 to $1,000,000||0.08%||0.18%|
|$1,000,001 to $2,500,000||0.06%||0.16%|
|$2,500,001 to $5,000,000||0.04%||0.14%|
|$5,000,001 to $10,000,000||0.02%||0.12%|
Some cryptocurrency exchanges may provide a straightforward order form for purchasing cryptocurrency directly, but this service may come at a greater price than Maker-Taker trading fees. For instance, Coinbase facilitates the exchange of cryptocurrencies for fiat currencies (such as U.S. dollars) and charges a standard fee of 1.49%.
When making a cryptocurrency purchase with a debit or credit card, certain exchanges will impose a premium on top of the standard transaction fee. Depending on the marketplace, this could go as high as 3.99%. Credit card processing fees can add up to 5% or more to the total cost of a transaction when a surcharge is included to compensate for these costs.
In conclusion, some cryptocurrency exchanges impose fees on both deposits and withdrawals. Fees for making a deposit or withdrawal are usually capped at a certain amount of the coin being dealt with. In order to entice users to make deposits, most exchanges will not charge a fee. However, several exchanges impose fees on customers who wish to withdraw cryptocurrency.
Although the great majority of cryptocurrency trades take place on controlled exchanges (such as Coinbase), many transactions nonetheless take place on the blockchain network itself. Payments made directly, use of a cryptocurrency-based app, or even simple trading on a decentralized exchange all fall under this category.
Those that use the system do so by forking over what is commonly referred to as gas fees to the system’s administrators. Most blockchain networks are made up of decentralized nodes servers running the blockchain software, and the operators of these nodes are compensated monetarily for their labor processing transactions on the network.
Solana (SOL), Ethereum (ETH), and Avalanche (AVA) are some examples of native cryptocurrencies that can be used to pay network fees on different blockchains (AVAX).
It’s possible to find blockchains with significantly lower fees than others depending on the network. Solana network transaction fees are now less than $0.01, compared to the normal Ethereum fee of about $10.
The cost of fees rises when there is heavy network usage because processing transactions take more time and energy. Fees on the Ethereum network, which processes a disproportionately high number of transactions in comparison to other blockchains, can easily exceed $100.
Costs associated with using a particular network to make a financial transaction can vary widely. You can decide if you’re willing to pay the network charge by looking at the network’s fee schedule, which is displayed by most blockchain networks before they complete your transaction.
Wallets are digital pockets or purses used for storing and exchanging cryptocurrency, making use of blockchain-based networks, and accessing distributed apps. Even if most of the costs of trading cryptocurrencies occur on exchanges or through network fees, there are still wallet fees to consider.
A fee may be charged by the exchange you are depositing to when you move funds from your digital wallet into your trading account. Transferring cryptocurrency from an exchange to a digital wallet may potentially incur a cost. These charges are usually deducted from the amount being transferred, but can also be paid in the original cryptocurrency.
In the case of the cryptocurrency exchange Kraken, for instance, the fee for transferring bitcoin from your exchange account to your digital wallet is 0.00002 BTC. It would cost $0.80, or 0.0002% of the then-current Bitcoin price of $40,000, to pay this charge.
When utilizing your wallet on a cryptocurrency application or trading on a decentralized exchange, you will need to pay a small charge to access the network. To pay for these network fees, you must have the native blockchain coin, such as ETH on the Ethereum network.
How to Avoid or Cut Back on Crypto Fees
Paying cryptocurrency fees is necessary for any cryptocurrency-related trading or use, but there are ways to minimize or eliminate these costs.
Methods for reducing cryptocurrency transaction costs:
- The Native Exchange Token is accepted as payment. It’s possible that holding some quantity of the native exchange token could help you pay less in transaction fees when using a crypto exchange. If you use Binance Coin (BNB) to pay transaction fees while trading on Binance, for instance, you will receive a rebate.
- Do Not Use a Credit Card to Purchase Cryptocurrency. While it’s true that many markets let you pay with plastic, the fees associated with doing so are often prohibitive. Credit card fees for purchasing cryptocurrency can sometimes reach 4%.
It’s best to stay out of the market while volatility is high. Network fees skyrocket when cryptocurrency markets are extremely volatile. Don’t make trades when there’s heavy traffic on the network unless you want to incur greater fees.
- Invest in long-term assets. Any time a user buys or sells cryptocurrency, the exchange takes a cut. If you make a lot of trades, your fees will increase accordingly. Just buying and holding your bitcoin will save you a lot of money on transaction costs.
- Select an Exchange with Minimal Transaction Fees. Finding a reputable cryptocurrency exchange with reasonable fees might save you a lot of money.
While it’s true that transaction fees are almost always unavoidable, implementing these tactics will help you keep your bitcoin trading and usage costs to a minimum.
The cryptocurrency was developed to launch a decentralized global payments system. Cryptocurrency has grown into a new asset class, and with that comes a slew of new fees, even though they promote the development of crypto networks.
Although there are a number of strategies to reduce the amount spent on exchange fees, they can still add up quickly. The best cryptocurrency exchange for you can be found with the help of a thorough understanding of the fees associated with trading.
Network fees can add up quickly when dealing in cryptocurrencies on a decentralized exchange or while utilizing a crypto application. Saving money on cryptocurrency transactions is as simple as avoiding high-volatility periods and switching to a blockchain with lower transaction fees.
Overall, fees are necessary for trading and using bitcoin, but they can be kept to a minimum with enough research.