Bitcoin Transaction Fees: A Full Guide and How To Save
When done right, Bitcoin can be a lucrative investment. Unfortunately, the initial capital needed to invest in cryptocurrency isn’t all that an investor will need. Bitcoin transaction fees are attached to most Bitcoin activity, and they aren’t likely to go away. When Bitcoin was first introduced, transaction fees were primarily charged to prevent the network from getting backed up with spam transactions.
Now, they function as a way to compensate miners for keeping the transactions moving as quickly as possible. Read more below about how much Bitcoin transaction fees cost and how to save.
How Much Are Bitcoin Transaction Fees?
Just about anytime that Bitcoin is involved in a transaction — making a payment using Bitcoin, buying Bitcoin, etc. — transaction fees will be charged. Two of the main factors that determine Bitcoin transaction fees are the data volume of the transaction and the speed at which the user wants their transaction completed.
As of Aug. 23, 2022, the average Bitcoin transaction fee is 0.000044 BTC, or $0.957. In the past year, it has fluctuated from less than $1 to nearly $5. However, at its peak in April of 2021, the average transaction fee reached over $60.
Here’s a look at different types of crypto fees to get an in-depth idea of how the fees are calculated.
Bitcoin mining fees are based on data volume and transaction speed. Transactions are processed in blocks, which can hold up to 4 MB of data. Therefore, the larger the transaction and the more people initiating transactions, the higher the mining fees.
The amount a person pays in fees will also affect the speed at which their transaction is processed and vice versa. Miners choose which transactions to process and often target transactions with higher fees first. Therefore, the more a person pays, the faster their transaction is likely to be processed.
Service fees are charged by third parties that are involved in processing the transaction. It could be a cryptocurrency exchange, a Bitcoin ATM or another service provider.
Exchanges will typically charge fees based on either a flat rate or a percentage of transaction volume. They will offer different tiers, which usually makes high-value or more frequent transactions less expensive compared to low-value or infrequent transactions.
How To Save On Bitcoin Transaction Fees
Crypto investors can use the following four tips to decrease Bitcoin transaction fees.
1. Time Transactions for Lower Fees
Since fees are likely to be higher when a lot of people are processing transactions, investors may consider delaying transactions until a different time of day. While cryptocurrency is used all over the world, the majority of users are located in the United States.
Therefore, Bitcoin’s spot volume is highest in the morning based on U.S. time zones. However, there tends to be fewer transactions made on the weekends. Traders can time non-urgent transactions during lower volume times, reducing their miner fees.
2. Compare Fees for Different Service Providers
Each crypto exchange or other service provider will have different fees for their services. Below are the rates from some popular crypto exchanges.
|Binance.US||0.1% maker fee; 0.1% taker fee|
|Bitflyer||Up to 0.1% flat fee|
|BitYard||0.1% to 0.3% maker fee; 0.1% to 0.3% taker fee|
|Coinbase||1% flat fee|
|FTX.US||Up to 0.1% maker fee; Up to 0.2% taker fee|
|Gemini||Up to 0.2% maker fee; Up to 0.4% taker fee|
|Kraken||0.9% flat fee for stablecoins; 1.5% flat fee for other cryptocurrencies|
|KuCoin||Up to 0.1% maker fee; Up to 0.1% taker fee|
Comparing the fees from different service providers is an easy way for crypto investors to save on transaction fees. Some websites and apps will allow users to compare multiple providers at once, making it quick and easy to choose a service provider with low fees.
3. Use the Lightning Network
When Bitcoin was first established, there were issues surrounding processing times. However, the Lightning Network was introduced to speed up payments by using off-chain payment protocol.
The Lightning Network can create payment channels off-blockchain that create separate ledgers and then merge with the blockchain when the channels are closed. Investors can reduce their processing times to milliseconds by using the Lightning Network.
Fees are also lower than the fees associated with regular Bitcoin transactions. The Lightning Network is especially useful for making small payments with Bitcoin since people won’t have to pay high fees for micropayments.
4. Check Fees for Different Cryptocurrencies
Bitcoin is known for having relatively low fees because its mining process has been simplified over time. However, some cryptocurrencies still have much lower transaction fees. For example, the average transaction fee for Bitcoin Cash is less than one cent. Litecoin is another good alternative for low transaction fees.
On the other hand, Bitcoin’s current transaction fees are lower than Ethereum’s average of $2.41. Therefore, investors will have to balance their desire for low fees with the ability to use their choice of cryptocurrency for a wide range of transactions.
Bitcoin transaction fees can become expensive if investors don’t strategize how they exchange crypto, make payments or complete other cryptocurrency transactions. Bitcoin’s transaction fees fluctuate frequently, but investors can take certain steps to lower fees.
Ultimately, it will come down to completing transactions as often as possible during low volume times. Additionally, investors should choose service providers that can provide them with the lowest service fees.
When choosing service providers, crypto traders should consider factors such as which cryptocurrencies are available, cybersecurity, policies that affect liquidity and other details that will affect how transactions are made.
Information is accurate as of Aug. 26, 2022.
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