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When done right, Bitcoin can be a lucrative investment. Unfortunately, the initial capital required to invest in cryptocurrencies is not all that an investor will need. Bitcoin transaction fees are attached to most Bitcoin activities and are not likely to go away. When Bitcoin was first introduced, transaction fees were primarily charged to prevent the network from being backed by spam transactions.
Now, they function as a way to compensate miners for keeping 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?
Almost whenever 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 volume of transaction data and the speed at which the user wants their transaction to complete.
As of August 23, 2022, the average Bitcoin transaction fee is 0.000044 BTC, or $0.957. In the last year, it has fluctuated from less than $1 to almost $5. However, at its peak in April 2021, the average transaction fee exceeded $60.
Here is a look at the different types of crypto fees to get a detailed 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 contain up to 4 MB of data. Therefore, the larger the transaction and the more people initiate 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 the transactions with the highest fees first. Therefore, the more a person pays, the faster their transaction is likely to be processed.
Service fees are collected by third parties that are involved in processing the transaction. It could be a cryptocurrency exchange, Bitcoin ATM, or other service provider.
Exchanges will generally charge fees based on a flat fee or a percentage of trading volume. They will offer different tiers, generally making high value or more frequent transactions less expensive compared to low value or infrequent transactions.
How to save on Bitcoin transaction fees
Cryptocurrency investors can use the following four tips to lower Bitcoin transaction fees.
1. Transactions on time for lower fees
Since fees are likely to be higher when many people are processing transactions, investors may consider delaying transactions until another time of day. While the cryptocurrency is used all over the world, the majority of users are located in the United States.
Therefore, Bitcoin spot volume is highest in the morning based on US time zones. However, there tend to be fewer transactions made on the weekends. Traders can time non-urgent transactions during times of lower volume, lowering their mining fees.
2. Compare rates for different service providers
Each cryptocurrency exchange or other service provider will have different fees for their services. Below are the rates of some popular crypto exchanges.
|Binance.US||0.1% manufacturer commission; 0.1% taker commission|
|bitflyer||Up to 0.1% flat rate|
|BitYard||0.1% to 0.3% manufacturer commission; 0.1% to 0.3% taker fee|
|base of coins||1% flat rate|
|FTX.US||Up to 0.1% manufacturer commission; Up to 0.2% take commission|
|Gemini||Up to 0.2% manufacturer commission; Up to 0.4% take commission|
|kraken||0.9% flat fee for stablecoins; 1.5% flat fee for other cryptocurrencies|
|KuCoin||Up to 0.1% manufacturer commission; Up to 0.1% take commission|
Comparing fees from different service providers is an easy way for cryptocurrency 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 rates.
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 an off-chain payment protocol.
The Lightning Network can create off-blockchain payment channels that create separate ledgers and then merge back into the blockchain when the channels are closed. Investors can reduce their processing times to milliseconds 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 will not have to pay high fees for micropayments.
4. Check the 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 a penny. Litecoin is another good alternative for low transaction fees.
On the other hand, Bitcoin’s current transaction fees are lower than the Ethereum average of $2.41. Investors will therefore 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 get expensive if investors don’t strategize how they trade cryptocurrencies, make payments, or complete other cryptocurrency transactions. Bitcoin transaction fees fluctuate frequently, but investors can take certain steps to reduce fees.
Ultimately, it will come down to completing transactions as often as possible during times of low volume. Also, investors should choose service providers that can provide them with the lowest service fees.
When choosing service providers, cryptocurrency traders should consider factors such as what cryptocurrencies are available, cybersecurity, policies that affect liquidity, and other details that will affect how transactions take place.
Information is accurate as of August 26, 2022.
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