The fees involved in crypto transactions can often cause confusion - particularly those paid to the blockchain network itself, rather than an exchange, wallet or platform (like Wirex). We’ve put together a quick introduction to blockchain fees to get you up to speed: what they are, how they work and what you can do about them if they get too high.
All crypto transactions require a fee to be paid to the blockchain network, in order for a transaction to be successfully processed.
For mined coins, the blockchain fee is charged whenever a transaction is performed on the blockchain and is paid to the miners each time they process and confirm a block - their mining revenue is the block reward plus the blockchain fee. For non-mined crypto transactions, which are validated through a process known as proof-of-stake, it’s the stakeholders who receive the reward - in the form of aggregate fees from a block of transactions. Their rewards aren’t as high as that of miners, since this form of validation costs significantly less.
The fee’s aim is to ensure your transaction is processed quickly. Since miners typically pick up transactions that have paid the highest fees, the more you pay, the higher priority it has in the network. It’s a sort of queue-jump system, if you will.
While that’s great for the miners, it means that the costs involved with crypto transactions can be hugely variable for those on the other end.
ETH transaction fees recently hit an all-time high with a new record average of $7.50 in mid-August, dropping by 80% again the following week. BTC, too, is no stranger to huge fee fluctuations - the average transaction fee soared by 547% to $6.47 on August 6th, falling back down to $2.43 just three days later.
Ethereum founder Vitalik Buterin recently proposed an overhaul of the existing cryptocurrency fee system, saying as it stands it could undermine the security of the network, as well as incentivise selfish mining practices - miners could grow increasingly reliant on fees in the absence of block rewards over time.
So, what causes such fluctuation in fees? In short, overloaded networks. In the same way as a token’s value is determined by supply and demand, so are its fees - the more congested a network, the more competition there is and the more likely people are to pay higher transaction fees.
Most crypto wallets support dynamic fees. This means they automatically calculate the appropriate fee by taking into account transaction size and current network conditions, while ensuring it’s high enough to be included in the first few blocks.
Unfortunately, blockchain fees are unavoidable and come with the territory of buying, sending or exchanging your digital money. They’re quite separate from any additional commission or charges, and can almost be seen as part of the token’s value. Have a look at our help centre article for hints on how to deal with over-the-odds blockchain fees.