Cryptocurrency Fees You Should Know About

Cryptocurrency has arrived. Since Bitcoin’s inception in 2009, what used to be considered a risky and niche market by investors and traders has turned into a global phenomenon that’s in a class of its own. Cryptocurrency trading is similar to trading on a stock exchange, however, the difference between the two is that with cryptocurrency you’re limited to trading only on cryptocurrency exchanges. 

Luckily for you, there now exists hundreds of online exchanges that let you buy, sell, and trade digital currencies. The thing about these exchanges is that they usually come with certain fees, hidden and seen, that if you’re not careful could seriously eat into any possible profits you may make. 

Typical costs might include fund transfer fees to/from your bank account, spot fees, mining fees, account fees, maker/taker fees, set transaction fees, or tiered transaction fees based on trading volume. The importance of knowing the various fees and their meanings cannot be stressed enough when engaging in the crypto space. In this case, the well-known saying “knowledge is power” rings true, and could be the difference between a successful crypto venture and not.

Exchange Fees

Cryptocurrency exchanges are businesses that are looking to earn money regardless of the price of the cryptocurrency they are selling. They are the platforms in which all manner of crypto trading takes place. 

These exchanges charge fees and earn commission based on the user’s trade. The fees are determined by how you are profiled as an investor. There are two kinds of identifying labels that exchanges can recognize you as. These are makers and takers.

Maker Fees

A lot of big crypto platforms, especially exchanges, operate using a maker-taker fee system. Maker fees are a common exchange fee and, as the name suggests, are charged to makers on a platform.

A maker will generally make an order within an order book that can be fulfilled by someone else later on, not immediately. This means that they “make” the marketplace for other traders. The marketplace wouldn’t exist without the makers. As a result of this fact, makers are the best users that any exchange can have because they provide the platform with liquidity.

Liquidity in this form means giving crypto coins the ability to be converted into traditional currencies like Dollars or Pounds. This is an essential part of any exchange because it’s what allows them to turn a profit. This can result in an exchange favouring the makers by charging them a lesser fee than the takers.

Taker Fees

While makers provide liquidity for an exchange platform, takers do the complete opposite. They remove liquidity from an exchange platform, which isn’t what the exchange wants. A taker will take an order that’s been made by a maker from an order book, therefore consuming or removing the liquidity it once offered. This happens when a user makes an order that is instantly matched by another order on the order book.

As mentioned above, exchanges turn a profit when makers provide them with liquidity, so when that liquidity is removed, they’re at risk of losing their profit. This is why takers are generally less favoured by exchanges than makers, and why exchanges will most likely charge takers a higher fee for their trades.

Withdrawal and Deposit Fees

If you buy crypto on an exchange, borrow it on a lending platform, or accumulate a crypto fund on any other kind of platform, you might find yourself eventually wanting to withdraw the funds. While you may think removing your own funds is free on most platforms, this isn’t always the case, unfortunately. 

Some big exchanges will usually charge you a fee for withdrawing crypto, though the size of this fee is often dependent on the kind of crypto you’re withdrawing, the location of the transaction, or even the amount you’re wanting to withdraw. It’s worth mentioning that some less popular or valuable coins are generally free to withdraw on platforms that charge withdrawal fees. So, you might want to check whether or not the coin you want to withdraw will incur a fee before moving your funds. 

On the other hand, deposit fees are probably the least common of all the different types of cryptocurrency fees, but they’re not rare. Some platforms charge you for depositing crypto funds into an account you hold with them, though the fee itself will vary depending on the type of deposit or the method of payment you use to deposit.

Transaction Fees

When you purchase a blockchain-based cryptocurrency, a new block needs to be written to confirm who the new owner is. This can only be done by ‘crypto miners’, who are faced with the limits of the crypto network, and thus prioritise transactions which offer higher processing fees, which means more money. 

Unlike exchange fees which are set by the exchange platform, transaction fees are determined by the market rate for transaction verification on the blockchain network. These fees are distributed as a reward for crypto miners or people who verify the transaction, and the network is set up to automatically process the highest transactions in terms of the fees that users offer. These network fees are incredibly variable and often dependent on the demand of the coin being processed.

Spread Fees

If an exchange doesn’t use the maker/taker fee structure, it will often charge spread fees. A spread fee is determined by calculating the difference between the cost of a token, like Bitcoin or Ethereum, and the amount a user either paid to buy it or was paid to sell it. 

Something to be aware of is that some crypto exchanges charge maker, taker, and spread fees. While this isn’t very common, you might find yourself paying a massive sum in fees if you’re not careful of which fees your chosen exchange charges.

What Can You Do About These Fees?

While some of these fees are common knowledge, others can catch you unaware if you’re not careful. The best thing to do if you’re wanting to start trading in cryptocurrencies is to look for an easy-to-use gateway into the crypto world like Altalix. There are no hidden fees when you buy or sell Bitcoin, Ethereum, or Litecoin with them, and they make the crypto process simple!