Most of us are familiar with the idea of service charges. Crypto exchanges make money whenever we make trades, regardless of whether it's cash-to-crypto or crypto-to-crypto. Brokerages that run on top of these exchanges charge their own fees in addition. No matter what, we'll need to pay fees for their services. Certain exchanges like DEXs charge much lower fees.
With crypto, there's another fee we have to be prepared to pay. We also pay fees when we make blockchain transactions with our crypto. Let's look at what some of these fees are and how much we can expect to pay.
Exchange service fees
Most exchanges charge their fees as a percent based on the amount of crypto bought or sold, so larger transactions will have higher fees. The percentage often changes depending on the liquidity.
Exchanges will include their service fee in the exchange rate we get for our trade. They do this by having the buyer purchase the crypto at a higher price than the seller receives for selling it. Exchanges keep the difference which is known as the spread.
The most commonly traded cryptos will have the lowest fees and, therefore, the smallest spreads.
Crypto transaction fees
Any transaction we make with crypto requires verification before it gets added to the blockchain. Transaction fees are an incentive for miners and validators to verify our transaction. We pay them using the crypto native to that blockchain.
These fees are not the same as the exchange fees! Exchange fees go to the exchanges for executing our trade, whereas transaction fees pay validators for adding the transaction to the blockchain. The transaction fee of a particular blockchain will be the same regardless of the exchange we use.
Transaction fee sizes will vary in different circumstances. For example, they will spike when there are a lot of transactions happening. We could end up paying significantly more to complete a transaction during periods of high demand. They go by different names depending on the blockchain, but here are two of the most popular transaction fees.
We have to pay a gas fee for our transactions on the Ethereum blockchain. The chart below shows the ETH gas fee over one year. The spikes show us the times when trading or using ETH was the most expensive.
Bitcoin transaction fees
Remember, transaction fees are blockchain-specific, so the fees for Bitcoin are different than Ethereum. The chart below shows the transaction fees for BTC over one year. We can see how quickly they can change by a significant amount.
Seeing our fees in context
Coinbase and many popular CEXs usually keep it simple for us by combining exchange service fees and transaction fees into a single amount, or spread.
Let's take a look at what fees look like in context.
What if we already have crypto, and we're looking to make a swap?
In the end, the $1.99 transaction fee on Coinbase represents 3.98% of our transacted value of $50. Paying a ~4% fee for the convenience of a CEX might be worth it for us if we make fewer long-term trades. However, if we trade frequently, those fees will start to add up and become expensive. In that case, we should consider lower-cost CEXs or use DEXs for our crypto-to-crypto trades. Some DEXs charge fees of about 0.5%.
It's always a good idea to pay the lowest fees possible, since fees lower our investment potential.
When investing in crypto, we'll pay lower exchange fees by investing in more popular cryptocurrencies. Buying or selling during off-hours will save us on transaction fees. Finally, we might want to consider using a DEX for any crypto-to-crypto trading if we will be trading more frequently.
Below are helpful resources to find current Ethereum gas prices and Bitcoin transaction fees.
Bitcoin transaction fee