One of the first questions most cryptocurrency beginners have is whether they can completely avoid fees when buying Bitcoin for the first time. Unfortunately, there is currently no way to pay an amount in fees or rewards when buying bitcoin.
Companies that advertise zero fees usually make their profit by buying bitcoins below market rates and then selling it for more.
Even if you find a company selling bitcoin with zero fees and zero premiums, you still have to pay a network transaction fee (also known as a mining fee) when you send bitcoin to your wallet.
Check out our article “Why do I need a crypto wallet?” for more information on using your wallet.
It is important to know what types of fees you may encounter when buying bitcoin. This article explains the four types of fees you may encounter and provides tips on how to minimize fees when buying bitcoin. While the ability to buy bitcoin without fees is not feasible at this point, you can still pay very low fees.
Types of fees to consider when buying Bitcoin
Financing fees and trading levy
Some exchanges require you to pay a fee to send money or receive money from their platforms. This can include both traditional currencies and cryptocurrencies. The fee an exchange charges to add funds to your account is called a “funding fee” or “deposit fee.” The fee they charge for sending funds from your account to an external wallet is called a “withdrawal fee.”
These two types of fees can be managed in different ways. Some exchanges charge a flat fee (usually anywhere from $1.99 to $5) or a percentage (0.02% up to 1% in some cases).
These deposit and withdrawal fees can be very important to understand if you are new to crypto. For example, if you wanted to buy a tiny amount of Bitcoin — say $10 — a crypto exchange’s fixed fee of $2.99 would be a serious problem. In that case it would be much better to use an exchange that charges a percentage.
In addition there are also different fees depending on the financial instrument you use to deposit or withdraw. In general, credit and debit cards are the most expensive ways to deposit on crypto exchanges (although they are also the fastest) while bank transfers are cheap or even free in some cases (but can take up to a few days to process).
Most exchanges charge a small amount, usually 0.1% to 0.2%, for each trade made on their platform. This may not sound like much, but it can add up if you trade cryptocurrencies frequently.
You may see these trading fees referred to as “maker” and “taker” fees. These terms refer to whether you are “making” an order (i.e. adding a new order to their order book), or you are “taking” an order (i.e. filling an order that someone else has already added to the order book). Maker fees are typically discounted compared to buying fees because exchanges want to incentivize people to create new orders. New orders increase liquidity (the amount of trading activity that is taking place), which makes the trade more valuable.
Some companies that buy and sell cryptocurrencies claim that they don’t charge any fees, but make profits by charging a premium on the bitcoin they sell. For example, if the market price of one bitcoin is $7000, the company will buy bitcoin at that price and then sell it for $7200.
This is often referred to as a “spread” and it is important to do some research and get an idea of what the spread on the exchange you want to use is like. It can be difficult to find the “true” price of a cryptocurrency, but if you control enough exchanges you’ll have a better idea of what’s reasonable.
Transaction fees (mining fees)
In addition to any other fees or
rewards you may pay, when you buy bitcoin or almost any other cryptocurrency, you will have to pay transaction fees. A transaction fee is also known as a mining or network fee and is paid to any miner who adds the transaction to the blockchain. This means that if you really want to own bitcoin, you have to pay transaction fees to have the bitcoin sent to your wallet.
The cost of transaction fees is based on how many people use the network, so they vary drastically. In recent years they have been as low as a few cents, but they can also reach up to $62 (!) per transaction. This is an ongoing issue with the Bitcoin network, and various technologies are being developed to address the high transaction cost (including the Lightning Network), but for the time being it is important to check the current transaction fees before sending.
It’s also important to know, however, that exchanges and wallets often pay more than the minimum fee to get the transaction added to the blockchain faster. Finally, and this is important, transaction fees do not increase with the amount of bitcoins sent: you can send 0.0001 BTC or 1000 BTC for the same fee!
Reduction of fees for the purchase of Bitcoin
When choosing which exchange to buy from, don’t just look at the price they offer. It is also very important to examine the fee structure. Does the exchange charge its users to send money to or from their exchange accounts? Will there be an additional trading fee charged when you buy bitcoin on this exchange? Is there a premium included in their price? Answering these questions will give you a more realistic idea of what you’ll end up spending on bitcoin from a given exchange.
You can also save on fees by buying bitcoins directly from someone you know who might want to sell. Be very careful if you go this route as there are so many scammers out there. It’s possible for a scammer to impersonate one of your friends or family and pretend they want to sell you bitcoins.
It’s helpful to consider the different types of fees and rewards you may have to pay when buying bitcoin. But remember, be very careful with scammers – it’s even more important to buy bitcoin from a reputable and reputable source (we’ve reviewed some of them here).