Cryptocurrencies are the way of the future. If you’re interested in picking up a few points for yourself and storing them in your wallet, you’ll need to understand cryptocurrency transaction fees.
That’s right – while cryptocurrency may not have as many fees or charges as using regular fiat currency, you’ll still need to pay some transaction fees to take advantage of the security and versatility of digital coins.
While platforms like CoinPayments strive to keep their crypto transaction fees as low as possible, they’re unavoidable to some extent. Furthermore, different cryptocurrencies have different transaction fees, making some coins better if you only have a small budget to start investing. Not sure where to start?
This article will compare cryptocurrency transaction fees and explain why these fees are necessary in the first place.
Crypto Transaction Fees Explained
Crypto transaction fees are a necessary evil of the cryptocurrency market, and they’re much better than the exorbitant and unnecessary fees of alternative monetary systems. In a nutshell, crypto transaction fees are charges levied to users when they transfer digital coins from one account or wallet to another.
Crypto transaction fees are necessary for the transaction to pass and be recorded in the coin’s relevant blockchain. Transaction fees, in other words, make sure that transactions are validated in the blockchain and ensure that a crypto coin’s platform continues to run and develop. Even though cryptocurrencies are decentralized, running the platforms that coins use still costs money.
Because different coins use different blockchains and encryption processes, transaction fees can also vary in their amounts, frequencies, and who gets the money from the transaction fees.
Cryptocurrency Transaction Fee Types
Blockchain or network transaction fees are the core type of cryptocurrency transaction you’ll need to worry about, and there are a few different types of crypto fees you may encounter. Let’s break down the types of cryptocurrency transaction fees in detail.
Blockchain Transaction/Network Fees
A blockchain transaction fee is exactly what it sounds like–it’s a fee charged to you when you move coins from wallet to wallet for using the blockchain’s encryption. Remember, all cryptocurrency is dependent on miners who solve complex encryption problems to secure the blockchain for everyone involved.
Blockchain transaction fees are essentially incentives for blockchain miners on a coin’s network (i.e., a Bitcoin blockchain transaction fee goes to Bitcoin miners). When a miner works on the blockchain, they get a commission or transaction fee for processing transactions.
With a standard blockchain method, any new transactions are regularly recorded in “blocks.” A miner then records the new transactions in the block and gets a reward for doing the mining. Without blockchain transaction or network fees, the entire cryptosystem would be much less efficient and essentially be reliant on volunteer labor.
Exchange fees are those charged to the users of crypto exchanges. Cryptocurrency exchanges charge fees from their users to make a profit, although they may also profit through other services or products like ads, cryptoanalysis tools, and more.
Naturally, one of the best ways to tell whether a crypto exchange is worth your time and money is to look at their exchange fees and see if they are too high.
Wallet Fees
Lastly, cryptocurrency fees also include wallet fees. This is technically a type of commission (like the above blockchain fee), but it’s charged when you use a specific wallet. Wallets are essentially secure software developed by independent companies, so wallet fees are paid to those companies so they can continue to maintain and improve the wallet over time.
Depending on the wallet you use, you may be charged commission fees for storing your cryptocurrency on the wallet. You may also be charged withdrawal fees to take out a certain amount of cryptocurrency. Again, this may determine which type of wallet you want to use – some wallets are cheaper than others.
But keep in mind that many more expensive wallets have greater privacy and security because transactions are checked multiple times to ensure fidelity and accuracy.
Cryptocurrency Transaction Fees Compared
At the time of this writing, cryptocurrency transaction fees are not very exorbitant. Some transaction fees are percentages of the value of the transaction itself, but you may also find transaction fees at flat rates, such as .00003 USD. Most transaction fees for cryptocurrencies are between $.0005 and $.25, although they can go up to as high as $25 or more.
Additionally, cryptocurrency fees often vary based on the current price of a given coin. The more transactions take place, the higher the likelihood that the transaction fee will be pricier. After all, the more people who use a given cryptocurrency, the more popular it is and the higher demand the coin faces. Therefore, the price goes up, so the miners or platform owners can then charge higher transaction fees.
However, the transaction fees described below could fluctuate in the future. That’s why it’s important to keep an eye on current transaction fees.
It’s improbable that Bitcoin will ever be unseated as the highest-priced cryptocurrency on the market. For the best results, try to trade your Bitcoin or make a withdrawal during low traffic periods. That way, the coin will be at its lowest value, and you’ll face the lowest transaction fees for your actions.
Are There Cryptocurrencies Without Transaction Fees?
Technically, yes. Nano is a cryptocurrency without any current transaction fees at this time. Furthermore, the coin makers claim that their transactions are nearly instantaneous.
Nano supposedly works by using a new consensus mechanism called “delegated proof of stake,” leveraging a block-lattice architecture. All Nano accounts have their own blockchains as a result. This means there aren’t any miners to incentivize with regular transaction fees.
However, keep in mind that Nano is still relatively unproven compared to other cryptocurrencies on the market, and it’s not nearly as ubiquitous as Bitcoin. Thus, if you want to take advantage of everything crypto has to offer right now, you’ll need to use a coin with transaction fees.
Ways to Minimize Crypto Fees
Aside from looking for crypto that doesn’t contain any transaction fees at all, you can also minimize the fees you pay through a few different strategies:
- For example, you can use an exchange with commission-free trading or very low exchange fees. CoinPayments is one example – this platform’s current fees are just 0.5% plus whatever coin transaction fee may be charged for incoming payments. This fee is the same for commercial deposits, transfers, and more. Even better, CoinPayments doesn’t charge any exchange fees for withdrawals or conversions (though you do need to pay whatever your chosen coin’s transaction fee is).
- You can also buy cryptocurrency with coins instead. Whenever you liquidate your cryptocurrency into fiat currency, you have to pay fees to make a withdrawal and then deposit fiat currency into your digital wallet. However, if you trade coins between each other, you may face fewer or no fees depending on the policy of your chosen wallet and the coins you decide to trade.
- Take full advantage of promotions. Wallets and crypto exchanges often include promotions that will eliminate or minimize transaction fees for a certain amount of time. You can time your withdrawals or coin transfers for these promotional windows and face fewer fees as a result.
However, you’ll never be able to avoid crypto fees entirely. Because of this, it’s best to plan out when you make your transfers or when you convert your cryptocurrencies into fiat currencies. In this way, you can transfer or convert your coins while experiencing the fewest fees possible.
Of course, if you plan to buy crypto just to invest in it by holding the coins as their value grows, you don’t have to worry about fees, at least for the foreseeable future.
Summary
All in all, cryptocurrency transaction fees are here to stay, but keep in mind that their prices could fluctuate over time. But the currently cheapest coin may not always be the cheapest cryptocurrency in the future.
Additionally, you can make the most of the current cryptocurrency transaction fee environment by using an exchange platform like CoinPayments, which offers affordable and consistent fees for traders, investors, or merchants looking to accept cryptocurrencies.
Want to know more? Check out our website or set up a merchant account to get started accepting crypto today!
Sources:
Blockchain Definition: What You Need to Know | Investopedia
Explaining bitcoin transaction fees | Blockchain Support Center
