Tutorial – What Are Cryptocurrency Fees?

If you were to send one Bitcoin right now, the recipient would only receive 0.99996 of a Bitcoin. This is due to the small fees associated with Bitcoin transactions, which also apply to the transactions of many other, decentralized currencies. What we really want to know is where do these fees come from, who gets them, and how much are they? In this guide to cryptocurrency fees, we’ll answer those questions and more, to satisfy your curiosity and help you save money on cryptocurrency transactions!

Where Do Cryptocurrency Fees Come From?

Just like Bitcoin, most cryptocurrencies use a blockchain to keep track of all transactions. In our article “How Does Bitcoin Work?” we explained how certain users called miners contribute to the blockchain, solving tough cryptographic puzzles before they publish their contribution to the network.

Since these miners use a large amount of computing power to do so, the network rewards them with a number of coins for each block they successfully contribute to the blockchain.

This is where transaction fees come into play. When there are a handful of transactions waiting to be added to the blockchain by miners (effectively confirming the transactions), users can add a fee to their transaction. If a miner includes that transaction in the next block, they get to claim that fee, so miners always process transactions with the highest fees first.

As a result, it’s practically impossible to send a cryptocurrency transaction without including a small fee – the size of which depends on how many people are using the currency at a given time.

However, considering how traditional payment methods work, you might be surprised to know that the size of a cryptocurrency transaction plays no role in determining the size of the fee.

How Much Are Cryptocurrency Fees?

Some say the whole point of cryptocurrencies was to reduce fees to a minimum (or zero, if possible), so just how low are these fees? Generally speaking, the size of the cryptocurrency fees depends on two factors:

  • The currency being used
  • The number of people using the currency at the time of the transaction

Of course, cryptocurrency fees only determine how quickly your transaction will be confirmed. If you’re happy to wait, you can simply enter a lower fee when sending a transaction.

As an example, the current transaction fees for Bitcoin (20th December 2018) amount to about $0.20 to have your transaction confirmed as soon as possible, or about $0.06 to have your transaction confirmed within an hour. Compare that to late December 2017, when the popularity of Bitcoin and other cryptocurrencies resulted in a huge number of transactions, causing the fee to jump above $35.

Looking at other cryptocurrencies, the fees can be significantly lower. For example, the cryptocurrency transaction fees for Bitcoin Cash – a Bitcoin alternative that was designed to facilitate cheaper and faster transactions – currently amount to less than a cent, and they didn’t even reach a dollar back in December 2017.

There are even some cryptocurrencies with zero transaction fees, but these tend to use alternative technologies to the blockchain. We’ll get back to them later.

How Do I Reduce Cryptocurrency Fees?

Before we dive into the few cryptocurrencies without any fees at all, let’s talk about how you can reduce cryptocurrency fees for the major coins.

As we mentioned, the two factors that determine transaction fees (for a given confirmation speed) are the currency being used and the number of people using the currency at the time of the transaction. This means that to reduce fees, you either have to change the currency you are using, or send your transaction when fewer people are using the currency.

Neither of these options is particularly convenient if you need to send a certain cryptocurrency at a certain time. However, if you have the flexibility, you can opt to use a cryptocurrency with lower fees or wait until network activity dies down to send fees.

To give you an idea of which cryptocurrencies have the lowest fees, we collected some of the most popular cryptocurrencies from our research platform Coinpaprika, ordering them by an average fee from lowest to highest:

  • XRP: $0.0008
  • Bitcoin Cash: $0.007
  • Litecoin: $0.0214
  • Ethereum: $0.0786
  • Bitcoin: $0.20

Do All Cryptocurrencies Have Fees?

As we mentioned earlier, not all cryptocurrencies have fees. Two of the most popular examples are IOTA and NANO. Both of these cryptocurrencies are “fee-less” since there are no dedicated miners. Instead, anyone who sends a fee on these networks will validate others’ transactions themselves. As a result, the only cost of using these currencies is the small electricity cost needed to process several transactions.

Other Fees in the Cryptocurrency Space

Although transaction fees are the most prevalent fees in the cryptocurrency space – and the only fees associated with cryptocurrencies themselves – you may run into other fees when using third-party services.

The best examples of these fees are the purchase, conversion, and withdrawal fees you will find on cryptocurrency exchanges and other vendors.

Purchase Fees

When you purchase cryptocurrencies from a major vendor like Coinbase, you’re often charged a small commission for using their services. This means that if you purchase $1000 of cryptocurrency, you might only receive $980 of cryptocurrency after the vendor’s fee.

Conversion Fees

Just like with purchasing cryptocurrencies, you’re bound to run into fees when you start converting currencies from one to another. Since most cryptocurrency exchanges only facilitate the trades between buyer and sellers (instead of trading the coins themselves), they take a percentage conversion fee on the transaction in exchange for the services they offer.

Withdrawal Fees

The final fee you’re bound to see on cryptocurrencies exchanges is the withdrawal fee. In this case, you’re not really paying fees for a specific service – instead, you’re just paying for access to your own coins.

If you look hard enough, we’re sure you’ll find other fees in the cryptocurrency space. However, between the transaction fees and the various exchange fees, we’ve definitely covered the majority of them.

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