Taking full responsibility for your finances and figuring out how to make transactions on the blockchain is not easy. It takes self-education and the learning curve may take longer than expected. Moreover, knowing things in theory doesn’t automatically protect you from making mistakes. When theory blends with practice anything may happen. Our post is here to provide you with helpful information concerning blockchain fees, their origin, and what types of fees exist so you are equipped with the required knowledge to make the right financial decisions on web3.

What are Cryptocurrency Fees?

Everything that is connected with paying for extra services you didn’t know about causes a lot of stumbling. Blockchain transactions require various fees when users want to sell, buy, send, or swap cryptocurrencies. Let’s discuss why you should pay these fees.

Network Fees

If we compare web3 with the traditional banking system, blockchain reality seems more complicated. Banks introduce fees for bank customers if they want to exchange currencies, send or receive money. However, there is no analog in the traditional financial system to cryptocurrency network fees. This is a unique concept that exists only in the world of web3. To discuss blockchain fees we have to say a word or two about how blockchains function. 

For blockchains to stay decentralized they require nodes run by validators (miners) who verify blockchain transactions and write them into the blockchain. 

If you want to send a transaction to the blockchain, you are required to pay network fees to validators. Based on these fees, miners (validators) include the transaction into the block on the blockchain.

Why Can Network Fees Change?

It’s important to keep in mind that each blockchain has different properties. For example, the Bitcoin blockchain has each new block added every 10 minutes, while the Dogecoin blockchain adds every new block once a minute. Blocks on various blockchains differ in size, which means that only a certain amount of transactions can be written there. This means that blockchain fees differ from chain to chain. 

To understand how network fees are applied, we can bring an example of a hotel service. A waiter is bringing breakfasts to hotel rooms. Several clients are waiting in different rooms, and the number of plates a waiter can take is limited but you can tip a waiter and speed up the service. It means that the people who can tip a waiter with a bigger sum than the rest will get their breakfast faster. Those who pay less money, get food later. 

Something similar is happening in web3. Cryptocurrency transaction fees are a function of demand and supply. The more transactions required to be written in a block, the higher the fees are.

Platform Fees

Platform and trading fees can be compared to banking fees charged for sending, receiving, or exchanging funds. Usually, these fees are applied to users of custodial crypto wallets which are provided by centralized crypto exchanges. When users don’t owe their wallets they cannot control what the fees are. Sometimes, centralized exchanges don’t even show a transparent view of what the fee breakdown is. 

Types of Platform Fees

1. Processing fees are applied when you buy crypto with the help of a credit card. Before finalizing the transaction, a summary is shown with the full fee breakdown.
2. Off-ramp/on-ramp fees are applied when you keep sending funds between the bank account and the crypto wallet. Exchanges provide you with ways to get money on and off the crypto ecosystem and charge extra fees for that.
3. Withdrawal fees are applied when you would like to withdraw digital assets from the platform and send them to the crypto wallet. This is a tricky part because exchanges can charge the highest fees in this case. It’s a good idea to double-check the withdrawal fees before finalizing the transaction.
4. Trading fees are applied when you swap cryptocurrencies. Depending on the exchange, the fees might differ. Usually, they could be less than 1 percent. The bigger the sum for a transaction, the higher the fees are. 

Summary

Blockchain transactions could be stumbling for unprepared users in terms of various fees applied. It’s important to understand the nature of cryptocurrency fees and find better options to cut them. One of the ways is MPC-powered wallets because they minimize the amount of interaction between the wallet and the blockchain protocol. MPC cryptography takes place off-chain and thus, helps you to save on blockchain transactions. 

Get the Spatium Wallet App and enjoy how user-friendly and convenient it is. Protect your crypto assets with MPC cryptography and save on fees while sending transactions to blockchains. Moreover, soon Spatium will enable peer-to-peer crypto swaps when you don’t need to go to centralized exchanges to swap cryptocurrencies. Stay tuned! 

Spatium Bitcoin MPC wallet is easy to use and free to download. It’s available on Android and iOS devices.

Try Spatium Feeless Bitcoin Wallet and the feature allowing you to pay a network fee in currency you send instead of native chain tokens (currently available for USDC on Ethereum. More chains and tokens will be added soon).

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Keep a close eye on Spatium Feeless Bitcoin wallet which is building DeFi on Bitcoin and actively working toward the introduction of feeless crypto transactions and cheapest ever peer-to-peer crypto swaps without escrow.

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