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Death. Taxes. Bank fees. And now crypto fees. They’re all unavoidable.
What exactly are crypto fees, and when do we have to pay them? This article answers both questions.
There are two types of fees. The first are the trading and transaction fees you page to an exchange (Coinbase, Binance, and many others). The second are network transaction fees.
You pay trading fees to trade on the exchange. These are the same type of fees you pay to trade stocks.
When you buy a stock, you pay a fee to the brokerage to transact for you. You pay another fee when you sell the stock.
You’ll pay withdrawal fees after you convert crypto to dollars, euro, etc. and send it to your bank account.
You pay a monthly fee to your bank to avoid paying debit card fees (although there may still be some of those you’ll pay). As a senior, your bank may eliminate the monthly fee for you as a perk, which is about the only good thing I can say about a bank.
Trading fees are a crypto exchange’s main source of income. The other fees typically cover costs to perform actions on your behalf.
The second type of crypto fees are network transaction fees. Bitcoin runs on a blockchain network. Ether does as well. Every coin or token runs on a blockchain network.
Each transaction on a network has a fee associated with it, which helps to pay those who keep the network running.
Most network fees are small, ranging from a few cents to a dollar or two. That’s not the case on the Ethereum network.
Its network fee could be quite expensive, or less expensive, depending on how congested the Ethereum network is at the moment. It will rarely be cheap though.
Ethereum fees have, when the network has been congested, been higher than $100 if they involve a smart contract.
So you definitely wouldn’t want to make any transfers during those periods. Weekends are often a good time for Ethereum transactions.
You pay them every time you make a transaction in the crypto world. It could be any of:
The fee you pay may combine a fee that you’re charged by the exchange or wallet and a fee charged by the network that runs the coin you’re using to start the transaction.
Here are some examples.
You have Bitcoin on an exchange and want to convert it to Ether (ETH). You’ll pay a transaction fee to the exchange.
There’s no Bitcoin network fee because your trade on the exchange is more of an accounting entry in a ledger than it is a transaction. (It’s still called a transaction though.)
You then want to transfer that ETH to a wallet you control. You’ll have a small exchange transaction fee and a fee on the Ethereum network.
This article on CoinDesk has an excellent explanation of the calculations that determine an ETH transaction fee.
That article has a section on keeping your ETH transaction fees as low as possible. While setting a maximum fee doesn’t apply if you’re using an exchange, the time of day or week definitely does.
Waiting for a time when there’s less Ethereum network congestion should reduce the fee you’ll pay, perhaps by half or more.
Those are just the ETH fees. If you want to buy an NFT or do something else involving a smart contract, the Ethereum network fee is even higher, as you also have to pay for the contract.
There are other networks with smart contracts, and most have fees of just a few cents per transaction.
Those networks have specific purposes though, such as running decentralized exchanges and liquidity pools. (Don’t worry about what those are for now.)
Some multi-coin wallets and most rewards platforms let you exchange coins for other ones.
For wallets, this is usually done in the background through an exchange. Rewards platforms may have an in-house swapping service, for which they’ll charge you a fee.
If you want to send some Bitcoin from your wallet to a family member, you’ll often send it to a wallet address the recipient controls. In this case, there’s only a network transaction fee.
If you send it to an address on an exchange, there usually won’t be a fee to receive it there.
If you want to take some profits, you can convert some crypto to your country’s fiat currency (for a fee) and then have the exchange send you the money (for another fee).
This second fee is to cover the exchange’s cost of sending money to your bank, to your PayPal account, etc. It’s usually a flat fee, not a percentage.
Some coins use the proof of stake method to validate transactions. This involves people or businesses staking large numbers of the coin for the privilege of becoming a validator and earning more coins.
A validator determines that each transaction is indeed legitimate. The coins are staked by the validator to ensure there’s no foul play in that process.
If the network determines that a validator has been approving bad transactions, that validator is “jailed” and loses all the staked coins. This can come to millions of dollars, so staking is an effective deterrent.
Validators like to spread the risk, so they offer some of the coins they earn in exchange for staking some of your coins to them. Staking can pay as little as 5% a year to 50% per year, and sometimes more.
You have to pay a small fee to stake your coins, and you pay again when you want to unstake them.