What Are the Top 3 Things People Get Wrong About Crypto Fees?

Misconception #1: Bigger Crypto Exchange = Lower Fees

People tend to think that using a cryptocurrency exchange with the most users or highest trading volume will offer them the lowest trading fees. This is not always the case. Fees vary between exchanges and there are multiple factors that determine what fees a user will pay. These factors include chosen payment method, size of the trade, and what type of trading account is used. For instance, a pro trading account on many exchanges will provide a user lower trading fees.

A large factor for determining fees is a user’s trading volume. Most exchanges operate on a tiered fee structure and calculate per 30-day trading volume. Fees will tend to decrease as a user’s trading volume increases. These tiers incentivize large and frequent trades so the exchange can maximize their profit. This means someone who is frequently trading large amounts of money will pay lower fees per trade than someone who is infrequently trading small amounts of money.

There are popular exchanges, such as Binance and Crypto.com, that offer some of the lowest trading fees at 0.1%. However, other large competitors such as Coinbase and Gemini offer flat fees or 1.49% of your trade (whichever is greater). There are various smaller exchanges, such as OkCoin and BlockFi, that offer similar low trading fees or even lower than the larger trading platforms. It can be worth it to shop around and take advantage of exchanges offering competitive trading fees and promotions.

Check out this in-depth review for the best cryptocurrency exchanges in 2022 to help you decide which exchange is best for you.

Misconception #2: No Fees are Charged on Failed Transactions

When you submit your transaction on a blockchain, you will accept paying a fee to the miners for their work to verify your transaction and record it on the chain. Depending on the cryptocurrency, transactions can take anywhere from a few minutes to hours to go through. On certain protocols, if the proposed transaction fee is too low or a smart contract rejects the transaction altogether, the transaction will fail. The funds are returned to the sender but the fees are not.

On Ethereum’s blockchain, users pay miners Ether (Ethereum’s native token) for their computing power to process and record transactions. The miners must process the transaction in order to determine if it will be successful or not. It’s like cashing a check – you have to try cashing it before you know if it will go through. If there are not enough funds in the wallet to cover the fees, the transaction will fail. According to Blockchair more than 1.2 million transactions failed on Ethereum’s blockchain in May 2022 alone. Before sending a transaction, users should be confident they have enough funds in their wallet to avoid losing out on fees.

Users can also lose out on fees by interacting with a smart contract that does not accept the transaction. This often occurs in scenarios where multiple people are attempting to purchase from a limited NFT collection or token sale. If there is a surge in demand to interact with a certain smart contract and the collection sells out, then by the time the transaction request reaches the smart contract there is nothing left to purchase. The transaction cannot be processed and so it ultimately fails, but the fees are kept by the miners for their work in processing the request.

Bitcoin’s blockchain runs differently. If you submit a transaction and it doesn’t go through, then it signals the miners never actually collected the fee and so your funds and your fees will be returned to your wallet after the transaction times out from the mempool within a few days.

Misconception #3: Transaction Fees are Consistent Across Blockchains

Transaction fees vary greatly across blockchains and in most cases the fee is dependent on the amount of crypto you want to send, how fast you want to send it, and the level of congestion on the network. There are no fees to receive crypto, only to send it.

Bitcoin’s block size averages 1MB, which equals around 1700 transactions per block and a new block is created every 10 minutes. Miners choose which transactions to verify and add to the blockchain. During busy times when many people want to send transactions at the same time, fees will increase as people will offer miners higher fees to prioritize their transactions first. When congestion decreases, so do the fees. Alternatively, you can use the lightning network built on top of Bitcoin’s blockchain which offers very low or no fees to transact. Transactions on lightning are considered off-chain, meaning they aren’t recorded in the blockchain, and you can settle on-chain at a later time when the network isn’t as congested.

Ethereum’s blockchain has been experiencing high congestion periods for months now, meaning transaction fees are very high. At various points users have noted paying more in gas fees than their actual transaction is worth. Ethereum plans to switch to a Proof-of-Stake consensus mechanism, which promises to reduce transaction fees for its users. Time will tell if the change in consensus mechanism will reduce fees or not.

Furthermore there are newer blockchains like Solana and Cardano that essentially charge no fees (or extremely low fees), which can be very useful for people just getting into cryptocurrency and blockchain.

It’s always a good idea to do some investigation into the fees you might encounter prior to making any trade or transaction. The best way to save on fees is to buy and hold!

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