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 transactions confirmed and added to the blockchain (we’ll cover this more 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).
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:
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 every time you transact on Ethereum. (The terms ‘gas fees’ and ‘transaction fees’ are typically used interchangeably.)
Worth highlighting: 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 activity.