What are Bitcoin Network Fees?
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Cryptocurrencies that have a fixed block size or a certain number of transactions per block, can process a fixed number of transactions per second incur network fees as a way of determining which transactions take priority over others. This is true for Bitcoin and many other cryptocurrencies on the market today.
We’ll be discussing the topic of Bitcoin network fees in this article, however, network fees are also incurred in other blockchain networks such as Ethereum as a way to incentivize miners to validate transactions on the platform.
Understanding network fees
When placing a transaction from your wallet, you will be prompted to add a transaction fee. A good way to picture this is that you are buying tickets for a plane flight. There is a fixed number of seats on a plane, and a fixed number of flights a day.
There is very little that can be done to add more capacity. The airline, thus, has asked customers to ‘bid’ on the seats. If you want a flight today, then you will likely have to pay more. The less you want to pay, means the longer in advance you will need to book your tickets.
Network fees are fees that are paid to Bitcoin miners for validating transactions and adding them to the blockchain. These fees provide financial incentives for miners to process transactions, with priority given to transactions that include a higher fee.
This is the same concept with Uber surge pricing, when demand for Ubers exceeds the number of drivers, the price rises until enough people make the trade-off to wait or use other transport, that supply equals demand.
These ideas are the exact same with cryptocurrency transactions. Instead of plane flights, we are talking blocks on the blockchain and instead of seats on the plane, we are talking about transactions within the block.
If you want your transaction to be processed quickly you will need to pay more. However if you are ok with waiting, then you are able to pay less.
Also read: What is blockchain technology?
Network fees when buying crypto
Easy Crypto includes network fees in the price. Much like a supermarket, the price on the shelves is the price you will pay at the checkouts. For our more savvy investors, we do believe in being open and honest with our prices. When you are placing your order, there’s a purple Rate info link that will itemise out the rates & fees.
And if you click the (i) next to network fees, there’s a further explanation of it.
As this is a fixed fee depending on market conditions regardless of the size of the transaction, it’s always more cost-effective to place a larger order than a smaller order. A transaction for $20 will cost the same as a $2,000,000 transaction.
We actually have a great article on this: Why do I have less that I think i should have?
If we assume a transaction of $20 Network Fee per transaction, we can clearly see the relationship between the size of the transaction and the percentage.
Bitcoin as always is the exception
When buying BTC, due to the sheer volume of Bitcoin transactions we process at Easy Crypto, we can bundle those transactions together while still delivering your purchase orders in a timely manner.
Keep in mind that transaction fees still apply when selling back to Easy Crypto.
More on Bitcoin: Read our complete guide on Bitcoin.
Network fees when selling crypto
Firstly, most wallets will provide a recommendation, we strongly advise to follow their recommendations.
Secondly, if a sell order has been sitting for a while and you can see in your wallet that the crypto has not been spent, most wallets have an option to “speed up the transaction” by adding to the fee. This is the network fee in action during the sell process.
Some useful resources to help make an informed decision are:
As you can see, with both Bitcoin and Ethereum, the time it takes for the transaction to be processed is dependent on the fee. The more you are willing to add to the fee, the faster your transaction will be validated.
Keep in mind that some wallets take the totals out of the amount while others add it on top, before making any sell orders it is important to know which one yours is.
This will save you time and effort as if the difference is substantial enough, given that our systems are completely automated, the deposit you have made couldn’t be associated with your order – resulting in delaying the payout.
Please note that there is no difference in the rate due to this. We process every incoming deposit the instant it arrives. If this ever happens to you, it isn’t the end of the world, please get in touch with our customer support team here.
Smart contracts and volatility
With some transactions, you will notice that they cost more than other transactions. On networks like the Ethereum network where the ecosystem allows for programmable money, the cost of a transaction is calculated by the amount of work required to complete this transaction.
Ethereum costs are called Gas, their price is usually expressed in Gwei (1 Gwei = 0.000000001 ETH). To calculate the amount needed to cover the fee, keep these basic terms in mind:
- Gas limit: the maximum amount that you are willing to pay for this transaction.
- Gas used: the amount of gas needed to process the transaction.
- Gas price: the amount in Gwei per unit of gas used in the transaction you are willing to pay.
- Transaction fee: how much this transaction ends up costing.
- Gas block limit: computational limit of the block in gas, this is to ensure that the system processing the block can actually complex the tasks.
A complex transaction that involves smart contracts can vary in price depending on the complexity of the contract. Some contracts that hold or stake a currency for an extended period of time have to calculate what will be the cost of returning the funds to you.
The developers of Ethereum have a great article further explaining how gas works and is calculated.
During periods of intense speculation in the market, traders with large investments move in and out of positions (Ethereum, Tether, Uniswap, and other ERC20 tokens).
This creates upward pressure on the demand for transactions, and given that there is a limited supply, the price tends to rise drastically. There is a direct correlation between large downward motions in the market and large increases in the network fee, this phenomenon has been observed in most major cryptocurrencies.
Network fees at Easy Crypto
When buying Bitcoin or any other digital currency from Easy Crypto, we make it easy by handling the network fees for you. For more savvy investors, you can always check the rate info “Rate Info button”.
When selling, the greater the network fee paid, the faster the transaction will come through and the sooner you will have your funds in your bank account.
With that said, we hope this article has been insightful and informative for those just getting into the crypto space or even seasoned traders alike.
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