You might have heard that cryptocurrency transactions are more simple than the bank ones regarding use. Digital coins are decentralized, and there is no need for any validation when conducting an operation. However, you could have missed the point concerning the fees that you are supposed to pay when sending bitcoin or its relative to somebody. Just like these guys had to:
I sent $25 of Bitcoin from one address (in Coinbase) to another (Kraken). - $25 sent - $16 fee - $41 total 40% of the total transaction in fees. unbelievable— Kristian Freeman (@imkmf) 8 декабря 2017 г.
So that explains where I tested sending 77 BTC to shapeshift and when it failed Im assuming because of minimum on gatehub I got 37 back geezzzzz lol— J Foxx (@JalenECU) 18 декабря 2017 г.
same the same issue Sent 49.92€ 16.04€ fee— Mukul Bikram Shah (@MukulBshah) 20 декабря 2017 г.
Even though you have probably thought that bitcoin is “the money of the future”, acknowledge that it is pricey and brace for the fees. To help you get accustomed to this fact, here are the causes behind blockchain expenses.
How do the fees work?
As usual, you might think that these costs are being sent somewhere. That is true, but the exciting thing is that they are distributed among several objects, meaning there is not one specified destination for the money to arrive.
Keep in mind that every token, which has ever been spent, must be officially included on the network. Therefore, once you have conducted a bitcoin (or any other similar) transaction, be ready to pay for this action to be recorded on the protocol’s blockchain.
The good news is that information about your transaction is being distributed between several computers so that it in case one of them goes down there still will be a copy on the network. It will prove that you possess the asset. But the drawback of all this is that you have to pay all the computers which save this data.
Besides, there is a miner, a person who verifies your transaction, putting aside coins, dedicating computer power and so on. The miner helps the network define which transaction should be recorded in which block of the chain. Thus, they are rewarded with a new digital coin.
Why should you pay so much?
The answer is pretty simple: your chances of getting the transaction into the block, which miners process, are higher if you pay the higher transaction fee. It means that the fee demonstrates how much you are interested in this operation.
There is also such a feature as data limits. Every bitcoin or similar transaction is represented by a small amount of information. Therefore, the most bulk of blockchains has limited room for that data. However, such limits vary depending on a particular blockchain. Bitcoin, for example, has a limit of one megabit per block. But on the whole, developers warn not to increase the limit as it may lead to technical issues. Currently, the data limits are in plain sight as they are tested due to a new wave of investors entering the crypto market.
Should you add any fee on top?
The fact that fees do increase signifies that cryptocurrencies are growing both in use and popularity. To take a handful of examples: since the beginning of 2017, the “Big Daddy” of cryptocurrencies bitcoin has surged by 1,700%, while its “heir-to-be” litecoin has gone up in total by 7,000% within the same space of time. But even though this is quite a recent progress, your wallet probably is not equipped for you to adapt to such changes.
Lots of wallets, which in fact are the client software for making transactions, let you decide how much of the fees to pay. But if you spend too little or ignore the fee altogether, it may take hours if not months for miners to tag the transaction to a block. Take into account the above mentioned: the more you pay, the higher possibility is that your operation will be picked by miners and added to a block.
Also, in case you are stuck regarding the decision of adding fees on top or not, do not hesitate to use different online calculators for determining the fee amount. It is at least something to reduce a fee headache.
Any other option?
Besides paying the fees for a transaction of bitcoin or Ethereum, you always have a choice of piling into the other cryptocurrencies, which are used less today, hence their fees won’t be that high.
Sure enough, the infrastructure of such digital coins might be not that wide as the one of bitcoin. For instance, bitcoin cash is bought less often than the “Big Daddy”. But on the other hand, you should be aware of problematic transactions and that it may take quite a lot of time to fix such malfunctions. Experts also warn that less popular coins could be involved in pump-and-dump schemes.
For now, all you can do is to hope that very soon developers and engineers will come with the solution which will allow decreasing the cost of using blockchain technology; hence you will pay fewer transaction fees for the popular digital coins. In particular, cryptocurrency users might be saved by the “off-chain” solutions. But now it is just a question of time.