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What are blockchain transaction fees?

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Often misunderstood by people a blockchain fee is not a website / micro wallet deposit or withdrawal, sending/receiving cryptocurrencies is not free. It is a standard (often realtime calculated) fee that is applied to all on-chain crypto transactions.

Blockchain transfers can save cryptocurrency users money compared to traditional banking fees, it is however far from free.

Why do you have to pay a blockchain fee to send coins/tokens to another person?

Every cryptocurrency transaction must be added to the blockchain, that is a public ledger of all completed transactions.

The work of validating transactions and adding them to the blockchain is done by miners, which are powerful computers (millions of mining computers for bitcoin) that make up a portion of the network and confirm its transactions.

Miners spend large amounts of computing power and energy doing this for a financial reward: with every block (a collection of transactions) added to the blockchain comes a bounty called a block reward, as well as all fees sent with the transactions that were confirmed and included in the block.

For this, miners have a financial incentive to prioritize the validation of transactions that include a higher fee. For someone looking to send funds and get a quick confirmation, the appropriate fee to include depends on the cryptocurrency being sent and can vary greatly, depending on a number of factors.

Why are my blockchain transaction fees so high?

Blockchain fees depend on several factors including network congestion, transaction confirmation times (affected by liquidity providers), and transaction size (as measured in kilobytes; affected when converting crypto from multiple inputs such as faucet earnings or other micro-transactions).

In other words, you may need to pay higher blockchain fees if:

  • The blockchain network is busy or loaded at the moment (congestion). Usually, the fee increases during sudden blockchain rate fluctuations and major world events.
  • Your crypto account has a history of micro/dust deposits (like referral bonuses). If your account has large amounts of small deposits, the size of your transaction will be bigger as it will consist of many inputs. The bigger the transaction size, the higher the blockchain fee.

Why do websites/micro wallets ask deposit or withdrawal fees?

Operating cryptocurrency websites that accept deposits and perform also withdrawals need a more expensive infrastructure than normal web hosting, Bitcoin VPS Hosting should be considered as a minimum.

Due to a higher cost and higher security level the website owner has to recover a bit for offering crypto-related services and hence the reason they often ask deposit and/or withdrawal fees on top of the blockchain transaction fee.

These extra costs are still relatively cheap compared to other services that offer financial online services where you can do similar transactions eg Paypal.

Note also that a lot of crypto-related sites will impose a minimum withdrawal or deposit, the reason therefor is relative simple. Dust transactions might cost more in transaction fees than the amount to be sent. Dust is considered often a tiny fraction of a cent which is possible with cryptocurrencies eg 1 satoshi which is 0.0000001 BTC.

Why does it take sometimes hours to have a cryptocurrency transaction arrive at the destination?

Offered transaction fee

Not all cryptocurrency wallets offer realtime calculation of transactions and you will have to set your own fee. If you set a to low transaction fee miners will not pick up as fast your transaction and hence it can take hours or sometimes even days till your transfer of coins/tokens arrives at the destination address.

Network Congestion

This is fairly simple to understand, in short, the cryptocurrency blockchain is overloaded with transfers to be done and miners can’t solve fast enough all hashes.
This is a known bottleneck with various cryptocurrencies and happens during the hype of a cryptocurrency (2017 BTC Hype) or world events (War, Trade wars eg USA/China). Miners will also give priority during network congestion at transactions with the highest financial incentive (blockchain fee)

What can you do to reduce blockchain transaction fees?

  • Check the average blockchain fee in the network of your preferred cryptocurrency. If your transfer is not time-sensitive, you can wait until the average fee amount drops. You can check this on major cryptocurrency exchanges, block explorers or websites posted below this article.
  • Group your micro/dust deposits in a cryptocurrency wallet, and then send a larger amount as one single transaction.
  • You could use some third party wallets that offer internal transactions off the blockchain.
    Examples are Coinbase where you can send to other Coinbase users by e-mail or Freewallet to another Freewallet user by user ID.

Visual presentation of a transaction through the blockchain

Handy links to follow blockchain transactions 

Transactions Fees Examples

You always will have to watch what the transaction fee will be, don’t assume it will be cheap. As we mentioned above it can be costly.

In the screenshot below is a relative cheap transaction, for sending 1 BTC a fee is applied of 0.001 BTC which is in this case like 0.1% of the total amount.

But in the next screenshot, it could have gone totally wrong where the transaction fee costs is much higher. This can happen by wrong input by yourself or if auto calculated by your wallet provider due to network congestion.

What is the highest transaction fee you ever paid or how long have you waited on a transaction, let us know in the comments below.

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