What Are Blockchain Transaction Fees?

Transaction fees are charged whenever you send cryptocurrency from one address to another. When you send cryptocurrency, the blockchain needs to update to reflect the changes in address balances.

For your transaction to get included in the blockchain, computers must agree that your transaction actually happened. As a reward for doing this work, the people who run these computers get a small fee.

Sometimes, this fee is added to the amount of cryptocurrency you’re sending. Other times, it’s deducted. It depends on the wallet or exchange you’re using.

How much are these fees and how are they calculated? There are many relevant factors here, such as:

The blockchain being used: Fees vary depending on the blockchain you’re using. For example, the fee for sending a transaction on the Bitcoin blockchain will be different to the Ethereum blockchain.

Network activity: Fees vary depending on how busy the network is. Generally, the more people using the network, the higher the fees. They increase in busy periods because people are willing to pay more to get their transaction confirmed and added to the blockchain (we’ll cover this in more depth in the next topic).

Personal preference: You get to set your transaction fee. Basically, the more you are willing to pay as a fee, the quicker your transaction will be confirmed and added to the blockchain. Note that setting your fee too low can cause you headaches later on (we also cover this in the next topic).

Blockchain Transaction Fees vs Exchange Fees

When it comes to buying and selling cryptocurrencies, blockchain transaction fees aren’t the only fees you ought to know about. Exchanges also charge a variety of fees.

Almost every exchange will charge a blend of the following fee types:

• Deposit fee: A fee charged by the exchange when you deposit fiat or cryptocurrency into your exchange account. (Exchanges will rarely directly charge you for depositing – they want new customers, after all. However, be aware of third-party fees when depositing. For example, a credit card processor will charge a small fee if you deposit funds with your credit card and international transaction fees may apply if you are depositing into an overseas-based exchange or brokerage.)
• Transaction fees: These fees are often referred to as maker or taker fees. A maker is someone who puts a buy or sell order onto an exchange’s order book. A taker is someone who ‘takes’ the buy or sell orders placed by makers. That is, a taker accepts a maker’s offer at an agreed price. Some exchanges charge maker or taker fees whereas other exchanges and brokerages charge a broader transaction fee (not to be mistaken with blockchain transaction fees).
• Withdrawal fees: A fee charged by exchanges or brokerages when withdrawing fiat or cryptocurrency from your exchange wallet to your bank account or external cryptocurrency wallet. Most exchanges and brokers charge this fee and it is usually enough to guarantee that the cost of the transaction of sending the cryptocurrency (or fiat) is covered ensuring that the exchange or broker is not left out of pocket. As these fees are typically fixed, and cryptocurrency prices can often be volatile, the fiat value of fees for withdrawing cryptocurrency can fluctuate until they are revised and updated by the exchange or brokerage.
• Conversion fees: A small fee charged by an exchange when you convert your deposited fiat. This is rather uncommon but is worth highlighting. You’ll incur these fees if you deposit Australian dollars, for example, but the exchange’s trading pairs are only in U.S. dollars or cryptocurrencies.

What Is Gas?

When learning about transaction fees, you’ll start seeing the word ‘gas’ a lot. Gas is something that’s unique to Ethereum and other select blockchains.

Gas is essential to the Ethereum network, think of it like the fuel that allows it to operate. You must use gas everytime you transact on Ethereum. (The terms ‘gas fees’ and ‘transaction fees’ are typically used interchangeably.)

An important thing to remember with gas: if you send a transaction on Ethereum that fails, you don’t get your gas fee back. Whenever you go to make an Ethereum transaction, use websites like ETH Gas Station to figure out roughly how much gas is suitable based on the level of network congestion and activity.