Bitcoin Transaction Fees: A Complete Guide and How to Save
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When done right, Bitcoin can be a lucrative investment. Unfortunately, the initial capital needed to invest in cryptocurrency is not all that an investor needs. Bitcoin transaction fees are associated with most Bitcoin activities and they are not likely to go away. When Bitcoin was first introduced, transaction fees were charged primarily to prevent the network from being backed up with spam transactions.
Now they act as a way to compensate miners to keep transactions going 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 any time Bitcoin is involved in a transaction—making a payment with 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 the transaction completed.
As of August 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 2021, the average transaction fee reached over $60.
Here’s a look at different types of crypto fees to get a thorough idea of how the fees are calculated.
Mining fees
Bitcoin mining fees are based on data volume and transaction speed. Transactions are processed in blocks, which can contain up to 4 MB of data. Therefore, the larger the transaction and the more people who initiate transactions, the higher the mining fees will be.
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 the transaction is likely to be processed.
Service charges
Service fees are charged by third parties 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 make high-value or more frequent transactions more affordable compared to low-value or infrequent transactions.
How to Save on Bitcoin Transaction Fees
Crypto investors can use the following four tips to reduce Bitcoin transaction fees.
1. Time transactions for lower fees
Since fees are likely to be higher when many people are processing transactions, investors may consider postponing transactions to another time of day. While cryptocurrency is used worldwide, the majority of users are located in the United States.
Therefore, Bitcoin’s spot volume is highest in the morning based on US time zones. However, there tend to be fewer transactions on 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 prices from some popular crypto exchanges.
| Crypto exchange | Fees |
|---|---|
| Binance.US | 0.1% producer fee; 0.1% appraisal fee |
| Bitflyer | Up to 0.1% fixed fee |
| BitYard | 0.1% to 0.3% producer fee; 0.1% to 0.3% appraisal fee |
| Coin base | 1% fixed fee |
| FTX.US | Up to 0.1% producer tax; Up to 0.2% assessment fee |
| The twins | Up to 0.2% producer tax; Up to 0.4% assessment fee |
| Kraken | 0.9% flat fee for stablecoins; 1.5% flat fee for other cryptocurrencies |
| KuCoin | Up to 0.1% producer tax; Up to 0.1% assessment fee |
Comparing the fees of 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 around processing times. However, the Lightning Network was introduced to speed up payments by using off-chain payment protocols.
The Lightning Network can create off-blockchain payment channels that create separate ledgers and then merge with the blockchain when the channels are closed. Investors can reduce processing times to milliseconds by using the Lightning Network.
The 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 don’t have to pay high fees for micropayments.
4. Check fees for different cryptocurrencies
Bitcoin is known for having relatively low fees because the 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 option 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 need to balance the desire for low fees with the ability to use their choice of cryptocurrency for a wide range of transactions.
Remove
Bitcoin transaction fees can be expensive if investors do not 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 the fees.
Ultimately, it will be about completing transactions as often as possible during low volume. In addition, 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, cyber security, policies that affect liquidity, and other details that will affect how transactions are executed.
The information is accurate as of August 26, 2022.
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