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Ask CryptoVantage: What Are All the Fees I’ll Encounter When Using Bitcoin?

You will encounter different types of fees when you send, receive, and trade bitcoin. The more you use bitcoin, the more familiar you will become with these fees. This article provides an introduction to the various types of fees you can expect to come across when using Bitcoin.

While it is important to be aware of the different types of fees that exist, it is equally as important to understand why they exist. That way you will always know where your money is going! This article will explain the reasoning behind each of these fees as well.

Calculating the different fees that come with using Bitcoin.

Fees from Buying & Selling Bitcoin

If using cryptocurrency exchange, you will come across different types of fees when you add funds to or remove funds from your account, as well as when you trade different types of cryptocurrencies. You might also find that increased trading frequencies have an impact on the associated fees being charged. This is because many exchanges try to encourage frequent, and large, transactions. Therefore, small and infrequent transactions on an exchange might not be cost-effective, but this is only worth considering if you are doing a lot of trading.

Exchange Deposit Fees

When you add regular (fiat) currencies, or cryptocurrencies, to your account on an exchange, you will sometimes be charged a “funding fee” or a “deposit fee”. For example, if you have $100 USD you would like to use to purchase bitcoin, you may lose a portion of that money when you add it to your account on the exchange. The amount you will be charged in deposit fees will vary depending on the exchange, which currencies you are using, and the size of your transaction.

Exchange Withdrawal Fees

Opposite to deposit fees, when you remove funds from your account on an exchange by sending the funds to an external wallet, expect to lose a portion of your funds to “withdrawal fees”. Each exchange will vary in terms of how large or small their withdrawal fees are for varying transaction sizes and types.

Trading Fees

When using an exchange to trade bitcoin for other currencies, trading fees will apply. The size of the fee depends on the exchange, but many exchanges charge roughly 0.1 or 0.2% per transaction. These fees are sometimes also referred to as “maker” and “taker” fees. Maker fees apply to those who are creating a new order, while taker fees apply to those who are filling an order. Often, maker fees will be lower than taker fees, because exchanges want to encourage people to create new orders.

Premiums

If you come across an exchange that does not charge the above fees, it is likely they are charging a premium on the currencies they sell. This means that they will sell bitcoin (or other cryptocurrencies) at a higher price than the actual market value so that they can take the additional funds off the top when performing the transaction.

Whether the exchange you are using charges trading fees, or has implemented a premium, every exchange has to make money off of the transactions performed in order to continue running and improving their platform.

Fees from Using Bitcoin

Once you’ve finally acquired some Bitcoin you can start to use it across a variety of platforms. You’ll notice, however, there are some fees involved when transferring it. Fortunately these fees are generally far less than what traditional financial institutions might charge.

Transaction Fees

Every bitcoin transaction requires a transaction fee – whether it is occurring on an exchange or not. Transaction fees are paid in addition to the amount you are sending in order to ensure that your transaction will be processed by a miner and confirmed by the bitcoin network.

The amount you pay in transaction fees is not depended on the value of your transaction, so whether you are sending $1000 or $1 worth of bitcoin, you would pay the same transaction fee. Depending on the wallet software you use to make a bitcoin transaction, you may be able to choose to pay a higher transaction fee in order to make you transaction confirm faster.

Some wallets let you choose a custom fee, and others allow you to choose between low, medium, and high (or slow, medium, and fast). However, there is a minimum fee of roughly 0.00000200 BTC (1 to 2 cents at the time of writing). The minimum transaction fee can vary slightly depending on the wallet you are using.

When using an exchange to send bitcoin, it is important to note how much the exchange charges in transaction fees. Some exchanges and wallets will charge higher transaction fees so that the transactions are processed and confirmed more quickly for their users.

Conclusion

Many of the fees you will encounter while using bitcoin come from exchanges, so it is important to do your research when deciding which exchange to use. Do not just look at the price of bitcoin on the exchange – you should also pay close attention to the fee structure. In addition to exchange-related fees, you will also encounter transaction fees. The minimum required transaction fee changes over time, and the higher the transaction fee you pay, the faster your transaction will be confirmed.