You will encounter different types of fees when sending, receiving, and trading bitcoins. The more you use bitcoin, the more familiar you will become with these fees. This article provides an introduction to the various types of fees you can expect to encounter when using Bitcoin.
While it’s important to
be aware of the different types of fees that exist, it’s equally important to understand why they exist.
This way you will always know where your money is going! This article will also explain the reasoning behind each of these fees.
Table of Contents:
Fees for buying and selling Bitcoin
If you use the cryptocurrency exchange, you will come across different types of fees when adding funds or removing funds from your account, as well as when trading different types of cryptocurrencies. You may also find that increasing trading frequencies has an impact on the associated fees charged. This is because many exchanges try to encourage frequent and large transactions. Therefore, small and infrequent transactions on an exchange may not be convenient, but it is worth considering it only if you are doing a lot of trading.
Exchange deposit fees
When you add regular currencies (fiat), or cryptocurrencies, to your account on an exchange, you will sometimes be charged a “funding fee” or a “deposit fee”. For example, if you have $100 USD that you want to use to buy bitcoins, you may lose some of that money when you add it to your account on the exchange. The amount you will be charged in deposit fees will vary depending on the exchange, the currencies you are using, and the size of the transaction.
Exchange withdrawal fees
Contrary to deposit fees,
when you remove funds from your account on an exchange by sending the funds to an external wallet, expect to lose a portion of your funds due to “withdrawal fees”. Each exchange will vary in terms of how big or small their withdrawal fees are for different sizes and transaction types.
Trading fees
When using an exchange to exchange bitcoins for other currencies, trading fees will apply. The size of the fee depends on the exchange, but many exchanges charge around 0.1 or 0.2% per transaction. These fees are sometimes also referred to as “maker” and “taker” fees. Manufacturer fees apply to those who are creating a new order, while purchase fees apply to those who are filling out an order. Often, manufacturers’ commissions will be lower than purchase fees, because exchanges want to encourage people to create new orders.
Awards
If you come across an exchange that doesn’t charge the above fees, chances are they’re charging a premium on the currencies they sell. This means that they will sell bitcoin (or other cryptocurrencies) at a price higher than the actual market value so that they can take the additional funds off the top when they execute the transaction.
If the exchange
you are using charges trading fees or has implemented a reward, each exchange must make money with the transactions performed to continue to operate and improve its platform.
Fees from using Bitcoin
Once you’ve finally acquired some Bitcoin, you can start using it on a variety of platforms. You will notice, however, that there are some fees involved during the transfer. Fortunately, these fees are generally much lower than what traditional financial institutions might charge.
Transaction fees
Every bitcoin transaction requires a transaction fee, regardless of whether it occurs on an exchange or not. Transaction fees are paid in addition to the amount you are sending in order to ensure that the transaction is processed by a miner and confirmed by the bitcoin network.
The amount you pay in transaction fees doesn’t depend on the value of your transaction, so if you’re sending $1000 or $1 worth of bitcoin, you’ll pay the same transaction fee. Depending on the wallet software you use to make a bitcoin transaction, you may be able to choose to pay a higher transaction fee to confirm the transaction faster.
Some wallets allow you to choose
a custom commission, and others allow you to choose between low, medium, and high (or slow, medium, and fast). However, there is a minimum fee of around 0.00000200 BTC (1 to 2 cents at the time of writing). The minimum transaction fee may vary slightly depending on the wallet you are using.
When using an exchange to send bitcoins, it is important to note how much the exchange charges in transaction fees. Some exchanges and wallets will charge higher transaction fees so that transactions are processed and confirmed more quickly for their users.
conclusion
Many of the fees you’ll encounter while using bitcoin come from exchanges, so it’s important to do your research when deciding which exchange to use. Don’t just look at the price of bitcoin on the exchange – you should also pay close attention to the fee structure. In addition to fees related to the exchange, you will also encounter transaction fees. The minimum transaction fee required changes over time, and the higher the transaction fee paid, the faster the transaction will be confirmed.
