Complete Guide To Crypto Network Fees
33 min read

Complete Guide to Crypto Network Fees

By Tayler McCracken

Some days I feel like I have the best job in the world, writing for the Coin Bureau. I get to cover some inspiring projects like mind-blowing metaverses. I get to show our readers the best places to earn high APYs on their crypto holdings, perform an in-depth analysis on why Bitcoin is a good inflation hedge and more.

If I can help bring just one person into crypto, and do my part in helping folks fight inflation, earn more money, or discover cool projects, then I consider it a mission success.

Though crypto isn’t all about swelling our moon bags and playing games, sometimes there is adulting that needs to be done. So once in a while, I put on my old-man pants, tighten my suspenders, start referring to my dog as a young whippersnapper, and write articles about taxes and crypto fees.

But hey, those things are important too! The world of crypto fees can be a dangerous place, full of expensive lessons to be learned if one does not do their homework beforehand.

Nexo Inline

As you are reading this article, I am assuming you are here for one of the following reasons:

  1. You’re doing the smart thing and trying to learn as much as you can before diving into crypto.
  2. You’ve FOMO’d in like a true crypto degenerate and got your socks knocked off by insane fees and are now wondering what the heck happened! (That was me when I first discovered Ethereum)
  3. You’re already in crypto and just here to continue your never-ending quest on the path to crypto educational mastery.

Regardless of what brings you here today, I hope that by the end of this article, you will walk away with a better understanding of network fees and how you can hopefully avoid nasty surprises.

Disclaimer: I hold many of the crypto assets mentioned in this article as part of my personal crypto portfolio.

What are Crypto Networks?

The crypto community seem to love synonyms. You may hear terms like the Bitcoin blockchain, the Bitcoin network, and the Bitcoin protocol; these essentially refer to the same thing: the blockchain network that the Bitcoin protocol runs on.

The same goes for other networks/protocols/blockchains like Ethereum, Binance Smart Chain, CardanoAvalancheAlgorandSolana etc. So there are dozens of different networks and tens of thousands of different tokens running on all these networks.

What on Earth am I talking about with all these networks? Isn’t it all just crypto?

To be blunt, no. This is where things can get confusing. If you have only ever held and traded crypto on a centralized exchange such as Binance or FTX, then crypto may seem straightforward.

But, in reality, there are base layer protocols, payment protocols, privacy coins, smart contract networks, scaling networks, oracles, interoperability projects, DAGs, DAOs, stablecoins, lending tokens, tokens for content monetization, file storage projects, mesh networking, energy projects, video streaming projects, and seriously countless other projects and protocols that are often entirely different. It’s enough to make one’s head spin!

Cryptocurrencies

Just a Sample of the Hundreds of Thousands of Tokens in Existence Image via Shutterstock

Users can swap and trade completely different assets from different protocols/networks like Bitcoin for Ethereum with no problem on centralised exchanges. This is really convenient as users can shuffle crypto assets around like a pack of cards and not think about what is happening on the underlying networks.

When exchanging crypto on an exchange, you are not magically turning your Bitcoin into Ethereum; that isn’t possible. What is actually happening behind the scenes is that the Bitcoin is being sold, and the funds are being used to buy Ethereum.

Binance

Swapping Crypto on Exchanges Looks Simple on the Surface Image via Binance

The buying and selling of these assets will incur network fees that the exchange takes care of behind the scenes. The user is simply being charged a transaction fee by the exchange company. Transaction fees and network fees are different. While the terminology may change slightly depending on the exchange or platform and is sometimes used interchangeably, typically, transaction fees go to the exchange or platform. Network fees go to the underlying network and are paid to the network miners and validators. More on them later.

Users may not always see a network fee on a centralized exchange, but these will become important when moving crypto off of an exchange when looking to self-custody, getting involved with Decentralized exchanges like Uniswap or other DeFi platforms, mint NFTs etc.

When I said that it was impossible to swap and turn Bitcoin into Ethereum, allow me to explain what I mean.

Bitcoin Ethereum

Image via Shutterstock

Each native cryptocurrency can only run and exist solely on its own network, and each cryptocurrency protocol is different. Bitcoin runs on the Bitcoin network, Ethereum runs on the Ethereum network, Solana runs on the Solana network, etc.

There are things like cross-chain bridgeswrapped tokens, wormholes, and projects like ThorChainCosmos, and Polkadot that provide cross-chain capabilities, but for the simplicity of this article, let’s take it back to basics. I use Bitcoin and Ethereum as an example, but these same principles apply to any crypto-asset that runs on different networks.

Cryptocurrency networks do not play well with each other. Assets like Bitcoin and Ethereum are like trains running on their own tracks. Just as a train cannot hop off its track and onto another track, neither can cryptocurrencies. Each crypto network is essentially its own track and does not cross with other network tracks, so Bitcoin never leaves the Bitcoin network, Ethereum never leaves the Ethereum network, and neither Bitcoin nor Ethereum can run on other networks unless it is a “wrapped” version of the asset.

I find it helps to visualize this. The Bitcoin network is only home to Bitcoin like this:

Bitcoin adoption

Image via Shutterstock

The Ethereum network is only home to Ethereum and Ethereum based ERC20 tokens like this:

Ethereum

Image via Shutterstock

Cryptocurrency networks do not work like this:

Cryptocurrency

Image via Shutterstock

The image above makes it look like crypto tokens are interchangeable and interoperable, all flowing seamlessly on the same network, which is not the case. However, this is the eventual goal that projects like Polkadot and Cosmos are trying to achieve, as this is the interoperable crypto future we all dream of, and it would be great if all crypto networks were someday linked but we are likely many years away from that.

Cosmos

The Goal of Cosmos is Interoperability Image via blog.bitnovo

If you never plan to send your funds off of the exchange where you bought them, you do not really need to worry about this stuff. But if you ever decide that you want to self-custody your crypto, send it to other exchanges, wallets, platforms, or get involved in the wonderful world of DeFi, then you are going to want to pay attention and make sure you don’t send a token on the wrong network, as that could result in a permanent loss of funds in some cases.

Network Fees

As mentioned, sometimes the exchange or platform will cover the network fee, but anytime you are sending crypto from a wallet, DeFi protocol/exchange, or anytime when there is no centralized authority involved, you will likely encounter a network fee, also sometimes called a transaction fee just to confuse everyone.

Here’s what I mean, two very popular self-custodial wallets are the MetaMask wallet and the Exodus wallet. One refers to the Ethereum fee as a network fee. The other is a transaction fee (come on, Metamask!). I mentioned how the crypto community loves synonyms, which is also often called a Gas fee. I will be explaining gas fees later on.

Crypto wallet

The network fees you will need to pay will vary depending on the network. For example, when someone wants to send Bitcoin, the network fee is paid in Bitcoin. When someone wants to send Ethereum, the fee gets paid in Ethereum. Solana is paid in Solana, Cardano is paid in Cardano, and so on, which makes sense. You can think of a blockchain’s native asset as similar to fuel, aka gas, as it is called for Ethereum. It’s that gas/fuel needed to power transactions for any token that runs on that network.

Where it can get confusing is that there are tens of thousands of tokens built on some networks that use the same metaphorical railway. Ethereum is the largest and most complex ecosystem, and example of this. Tokens such as Chainlink (LINK), Decentraland (MANA), The Sandbox (SAND), Uniswap(UNI), stablecoins like USDT and USDC and thousands of others also run on the Ethereum network, so ERC20 tokens (AKA Ethereum based tokens) do not have their own network, they run on the Ethereum network. Because of that, users need to pay network fees in Ethereum, as Ethereum is the “fuel/gas” needed to send any one of the thousands of Ethereum based assets.

Ethereum ecosystem

Diagram Showing Only a Small Fraction of the Ethereum Ecosystem- It’s Massive! Image via bitcoinnewspost

Chainlink was one of the first crypto assets I ever purchased. However, the first time I tried to send it to a wallet, I was hit with an error message saying, “You don’t have enough Ethereum!” which I found confusing as I was trying to send Chainlink, not Ethereum? I didn’t understand why I needed ETH, so I was met with a message very similar to the one below:

Not enough ethereum

Error Message in Exodus Wallet Telling the User That They are not Holding Enough Ethereum for an Ethereum based token transaction. Image via Exodus Support

I remember the crazy amount of outrage that existed during the 2021 bull run from many new users to the crypto industry who didn’t understand Ethereum gas fees.

People were writing scathingly negative reviews about crypto wallet companies all over the internet as the Ethereum gas fees were skyrocketing to hundreds of dollars, and people were mistakenly thinking that the wallet companies and crypto platforms were charging these fees. There were threats of lawsuits; it was chaos. People did not understand that these fees had nothing to do with the crypto wallet company or decentralized platform; these fees were sent entirely to the Ethereum network miners who were dealing with record levels of traffic on the Eth network.

High gas fees

Image via Businessinsider

Now, of course, I know, and so do you, that you need to hold Ethereum for gas to pay the network fees for any Ethereum based ERC20 token.

The same goes for the Solana network, BSC, Cardano etc. Whenever a network has a native token, the native token needs to be held as fuel to cover the network fees. So next time you go to send an asset like PancakeSwap (CAKE), you will know that the fee needs to be paid in BNB token, or any Polygon tokens need to be fuelled by holding the MATIC token etc. These network fees are paid automatically, so you need to make sure you are holding some of the native tokens in your wallet, and you are good to go.

There are a few exceptions to this rule. Some crypto ecosystems run a two token type system where one token is used to cover fees on the network. The prominent examples of this are VeChain which has fees that need to be paid in VeThor. Theta, which has fees that need to be paid in Theta Fuel. Neo, which has fees that need to be paid in Gas. And Ontology has fees that need to be paid in Ontology Gas.

Vechain

The Two Token System for Vechain and VeThor

Why are There Network Fees?

I know fees can be a royal pain and nobody likes paying them, but nobody wants to work for free. Fees are how we pay for convenient services to be provided that make our lives better. We pay fees to enjoy Netflix, fees to enjoy Spotify, fees for food and shelter etc., and we pay fees to use Cryptocurrency as well.

Nearly every transaction recorded on the blockchain will incur a network fee. It doesn’t matter if you are using the Ethereum network, Bitcoin network, Ripple, Cardano, Solana, Polkadot, or one of the other networks.

Crypto fees compared

Comparing Some of the Various Blockchain Fees Image via Twitter/Coinmarketcap

A couple of blockchain networks allow fee-free transactions that will be covered later on, but for the most part, just expect that network/gas fees will be part of life in the crypto world. But, hey, I’d rather pay crypto fees than bank fees any day!

Crypto fees aren’t always a bad thing as someone needs to pay for the work being done by the network miners and validators who run the machines, nodes, and protocols that validate and confirm transactions and secure the network.

Bitcoin mining

Fees go to Paying Bitcoin Miners to run Mining Farms like This. Image via Shutterstock

Miners and Validators are the unsung heroes, the workhorses that support the blockchain infrastructure, and I don’t mind paying them for their work. If it weren’t for them, crypto couldn’t be used!

Where do the Fees go?

When you send a crypto asset to a wallet or an exchange, for Proof-of-Work-based assets like Bitcoin, the transactions need to go through a network/blockchain/Bitcoin miner.

I’ll skip the technical jargon to avoid boring you. I wouldn’t even understand the technical stuff myself. Miners are basically computers dedicated to the network that solve complex algorithms to validate all transactions and prohibit fraudulent transactions or double-spend attacks.

When someone sends Bitcoin, they create a cryptographically secure transaction broadcasted through the internet on the Bitcoin network, which is picked up by the network of Bitcoin miners. The miners collect as many transactions as can fit into a block. Then their computers go to work, going through a mathematical process to verify the block and add it to the chain of past blocks, hence the “blockchain.” Here is how that looks:

How do bitcoin transactions work

Image via Shutterstock

Miners get rewarded via freshly minted tokens for contributing their computing resources to the network. There is a lot of computing power needed to process crypto transactions. The resources to do so can be quite costly, so the network fee for crypto transactions goes to the folks who run these computers so we can send our beloved Proof-of-Work cryptocurrencies.

This process varies a lot depending on whether the token uses a Proof-of-Work, Proof-of-Stake, or one of the other consensus mechanisms. Unfortunately, I cannot cover them all, but as Proof-of-Stake is very popular, and Ethereum will soon be merging to Proof-of-Stake, we should cover that one as well. Some cryptocurrencies that use Proof-of-Stake or a variation are Cardano, Solana, Tezos, Avalanche, Algorand, and many others.

Proof of work vs proof of stake

Proof-of-Stake cryptocurrencies allow owners of a crypto asset to stake coins and create their own validator nodes. Staking is the process of pledging your coins to be used to verify transactions. When someone stakes their crypto, those funds are locked up for the duration of the staking process, which varies depending on the asset.

When a block of transactions is ready to be processed, the Proof-of-Stake protocol will choose a validator node to review the block. The validator checks if the transactions are accurate, and if they are, that block gets added to the blockchain and the validator node that validated and processed the transaction receives rewards for its contribution. Those rewards are made up by the network fees that go along with transactions. Proof-of-Stake transactions require much less computational power, so therefore the transaction fees are generally substantially lower. Here is a look at how some of the different consensus mechanisms compare:

cryptofeecompare

Chart Comparing the Differences in Energy Consumption and Fees Between the Different Consensus Mechanisms Image via Hupax.medium

Solana, Algorand, and Avalanche simple transactions can be sent for fractions of a cent when network activity is low, making these among the cheapest PoS crypto networks. However, complex transactions on Avalanche have been reported as creeping above $10.

What Influences Transaction Fees?

Just as not all blockchains are created equal, neither are network fees. Fees largely depend on network congestion, consensus mechanism, block sizes etc. You can learn more about the different consensus mechanisms most commonly used in Guy’s video on Crypto Consensus Methods.

Fees can vary massively for tokens like Bitcoin and Ethereum. I’m talking hundreds of dollars for Ethereum especially. I’ve paid for transactions as low as a few cents and have seen transactions go for $300 or more!

The main factor contributing to high fees for Bitcoin and Ethereum is network congestion when you are trying to send a transaction. The more people try to use the network at once, the higher the fee will be. Take a look at how the Ethereum network spiked during the previous bull run, forcing Ethereum users to pay fortunes if they wanted to play in the Ethereum playground.

Ethereum fees

Image via Coinmetrics

Ethereum gas fees have been a massive pain point and a significant barrier to entry, plaguing the entire crypto industry for many months during bull markets, with fees often costing more than the person is trying to send.

Because of this, many users have been altogether avoiding Ethereum, which is one of the reasons for the explosion in popularity of alternative networks like Cardano, Solana, Avalanche, Algorand and other layer-1s. I want to point out that scaling issues are common among nearly all blockchains in these early days.

We have already seen Cardano and Solana showing early signs of network congestion problems, with the Cardano network slowing down after the launch of SundaeSwap and the Solana network experiencing multiple outages! Not good. We have also seen a considerable spike in network fees on Avalanche during peak times.

Though, none of these networks come close to experiencing the type of fees hurting Ethereum users. It is also important to state that Ethereum has a significantly higher volume of users; the other layer-1s only see a fraction of the traffic that Ethereum handles. Nobody knows what would happen to the other layer-1s if they saw the same volume level or if they could even handle it! Here is a look at the TVL of many ETH competitors, showing Ethereum is still king by quite a large margin:

Delphi digital

Image via Delphi Digital

Developers on these networks are aware of these pain points and are working on scaling solutions as we speak. Ethereum already has many layer-2 scaling solutions, such as Polygon, which aim to help, but no network is perfect in this regard, though they are getting better all the time. Cardano especially sounds like they have some robust and advanced scaling solutions in the pipeline that may prove to be hugely beneficial. You can learn about that in our Cardano Review.

Another factor contributing to fees on Proof-of-Work blockchains are block size, hashing algorithms, block space supply and how many megabytes of data are being crammed into each transaction. That is why cryptocurrencies like Litecoin and Dogecoin have lower network fees than Bitcoin. Well, that, and because more people use Bitcoin.

Bitcoin vs Litecoin

Image via Shutterstock

It is helpful to know that the amount of crypto you are trying to send does not affect the network fee. It doesn’t matter if you are sending one dollar or a thousand dollars worth of crypto; the network fee will be the same, so consider that when deciding how often you need to move your stash.

So we know that crypto fees are generally variable, but some have a fixed fee structure or no fees depending on the protocol and platform you are trying to send from, which we will cover next.

Networks With the Lowest, or No Fees.

We have talked a lot about what affects the fees for Proof-of-Work and Proof-of-Stake cryptos and discussed some Bitcoin and Ethereum alternatives with lower fees, but for the truly die-hard fee haters, there are even cheaper networks that will allow users to send crypto for free, or with fees so low they are practically negligible!

These cryptocurrencies are important as they are more useful as actual currency. For example, I don’t mind paying 3 dollars for a Bitcoin network fee if I plan on only sending it once and holding it for a year, but I don’t want to pay 3 dollars in fees for daily purchases and every time I go to the shop to buy candy (Haribo for the win!)

Allow me to introduce Ripple (XRP) and Stellar (XLM) tokens. While Ripple and Stellar both run on their own networks, these networks are neither Proof-of-Work nor Proof-of-Stake; they both use a different method of validating and verifying transactions. These cryptocurrencies were developed specifically for use as payment and cross-border payment networks, and they fulfil those roles very well.

Ripple vs Stellar

Image via Shutterstock

Ripple uses Ripple Protocol Consensus Algorithms (RPCA), while Stellar uses the Stellar Consensus Protocol (SCP). These networks are very similar, and I won’t get into the details of how they work, but basically, users can send Ripple and Stellar, or any crypto that uses that style of consensus algorithm for fractions of cents, fees so low they may as well be free which is why there are so many XRP enthusiasts. Who doesn’t love essentially free transactions?

XRP ledger

Ripple XRP’s Transaction Consensus, Calculating a Ledger Validation. Image via XRPL.ORG

“Hey! You said No Fees!?”

I know, I know, I’m getting to those. I promise there are a couple of unique networks out there where users can send crypto completely free. The two most popular are the EOS network with the native token EOS and the Tron network, with the native token being Tron (TRX).

These networks do not use Proof-of-Work or Proof-of-Stake either; they use what is known as a Delegated Proof-of-Stake (DPoS) consensus mechanism. This is how users can send their Tron or EOS tokens completely free of charge if they are sending from a wallet or decentralized platform that supports these network’s unique functions. Note that most exchanges may still charge a transaction fee as they always want their cut. Here is a great diagram from Blockchain Zoo breaking down the Delegated Proof-of-Stake consensus algorithm:

Transactions on these networks are not paid in fees but in computational power in bandwidth and CPU. These networks are not as common or as popular today as the standard Proof-of-Stake networks. However, in previous years both Tron and EOS were top ten cryptocurrency projects.

Both networks are still quite large and in use, but they have fallen out of favour in recent months due to a lack of marketing efforts and partnerships and a lack of new developer attraction. But don’t write these networks off! They have been around for a long time, and some bullish projects are building out on both, such as the Bullish EOS-powered exchange backed by Peter Thiel and Block.one.

Bullish Exchange

Image via financefeeds

The way users can transact for free is to freeze or lend out their tokens to the network and get paid in return with the computational power needed to send these transactions for free. So instead of Proof-of-Stake, where validators are paid in tokens, Tron and EOS pay for “staking” in computational power for some sweet fee-free transaction action.

That is, of course, a very simplistic overview of how these networks function that does not do the ingenuity of the network creators justice for their work, but that covers the gist of it for laypeople such as myself. As these networks are slightly less “beginner-friendly,” I would highly encourage you to do your homework on understanding how these DPOS networks function before diving in.

How to Save on Fees

Okay, now, for the good part, let’s save you some digital cash!

I look at crypto through quite a simplistic view. Too simplistic, probably.

When I look at making purchases with crypto, I never even bother trying to use Bitcoin or Ethereum. The fees are too high, and those tokens are too valuable, in my opinion, to waste on my gummy bear purchases. To use crypto as cash, see if they accept payments in the cheapest cryptos like Ripple or Stellar. If you want to use Bitcoin, see if there is support for the Bitcoin Lightning network, as that is a serious game-changer that drastically reduces fees.

Dash and Litecoin are also fantastic alternatives, and Litecoin is almost as widely accepted as Bitcoin. Dogecoin is also becoming more widely accepted and has cheaper transactions than Bitcoin. Finally, look at Cardano’s ADA, Solana’s SOL, Avalanches’ AVAX or Algorand’s ALGO for transactions, as they can often be below a cent, anything to avoid BTC or ETH, really.

Be careful with Bitcoin fees as well. During low congestion times, a Bitcoin transaction may only cost a few cents, but fees have spiked to above 50 dollars in the past during bull run mania. Also, make sure you understand your Satoshi’s and don’t let all those 0’s fool you into thinking it’s cheap. For example, many centralized exchanges will “only” charge 0.0006 BTC for a withdrawal, but that is over 25 dollars at current Bitcoin prices!

Crypto accepted here

This Merchant also Supports Litecoin and BNB as Cheaper Alternatives Image via Shutterstock

Anyway, that is my go-to approach for crypto purchases. Of course, EOS and TRON would also allow free transactions though I don’t know of many places that accept those. Online merchants have seriously upped their crypto game, though, with Shopify merchants being able to choose to accept over 300+ cryptocurrencies.

I know it may sound like I am hating on Bitcoin and Ethereum, but that could not be further from the truth! I would love to have a bunch of gold bars in my basement, but that doesn’t mean I will love hauling them to the cafe to try and buy a coffee. I treat Bitcoin as a store of value and inflation hedge. I also use Ethereum as a store of value and as a way to get involved in the amazing world of DeFi. I treat neither one as a “currency.” Sometimes you have to swallow the fees for their benefits, but fear not, there are ways to reduce those fees!

For Bitcoin:

  1. Use the lightning network when possible.
  2. Try and reduce the frequency of Bitcoin transactions. For example, if you practice dollar-cost averaging (DCA) and frequently purchase Bitcoin on an exchange, limit the number of withdrawals to your wallet to every few months or whatever you are comfortable with. If you buy 0.0006 BTC every two weeks and the withdrawal fee is 0.0003, you lose half your purchase every time you withdraw. Save up a few purchases and move the funds in larger chunks as the fee is not dependent on the amount. Be sure to check the withdrawal fees for the platform you use to buy crypto.
Binance fees

Keep an Eye on the Withdraw Fees page Image via Binance

  1. Wait for times of lower network congestion. These times are typically on weekends, late at night, or early morning UTC. Use a site like blockchain.com and look at the mempool chart to see how many transactions are waiting to be confirmed. The higher the chart, the more expensive.
mempool

Image via blockchain.com

  1. Adjust the fee- Most Bitcoin wallets allow you to set a custom network fee; however, if this fee is set too low, there is a chance the transaction won’t get picked up or can severely slow down the transaction time. You can use a site like bitcoinfees.net that can give you recommended fees to set based on current network congestion.
Bitcoin fees

Image via Bitcoinfees

  1. Use a wallet or platform that supports SegWit transactions. Using SegWit can reduce Bitcoin fees by up to 30%.
  2. Know your Bitcoin wallet address formats. Avoid using old Bitcoin legacy addresses (P2PKH) that start with the number 1. Bitcoin addresses have evolved, as have many crypto wallets. Try and use wallets/addresses that begin with the number 3, which are Pay to Script Hash (P2SH), or even better if you can use an address that starts with bc1, which is Native SegWit (P2WPKH), as this can reduce fees up to an additional 38%.
  3. Mind the inputs and outputs! Bitcoin transactions can be more expensive to send if the amount is made up of smaller inputs. Bitcoin network fees are proportional to the size of bytes in your transaction. Bitcoin utilizes an Unspent Transaction Output (UTXO) model, which means you receive BTC back like “change” back for transactions. So, if you own 5 BTC and want to send 2, your wallet sends the total amount, so 5, then 3 (minus network fees) would get returned to your wallet in what is known as a change address like so:

UTXO

The UTXO that gets returned to the change address still appears in your wallet the same as it did before, this process can get more in-depth, and you can export your change addresses to find the bits of Bitcoin that reside in each change address if you want to, but that is a topic for another article. All this happens behind the scenes and is invisible to the user; all you need to know is that your wallet balance will reflect the proper, total balance of each change address and your Bitcoin address.

Another reason why all this is important is that if you receive multiple small Bitcoin transactions, then need to send one large transaction, the network will combine all the smaller input amounts you have received to make up the large output amount like this:

UTXO

So what this all means is if you send yourself one full Bitcoin as one transaction, then you need to send out one full Bitcoin in one transaction; that one is easy as there is one input and one output, fewer bytes of data.

Where Bitcoin fees can get expensive is if you need to send one whole Bitcoin out, but that one Bitcoin balance is made up of a bunch of smaller incoming amounts, tossed in with a few small outgoing transactions with UTXO returns, and that is now a lot of work your wallet needs to do to pile together one whole Bitcoin, resulting in a more expensive transaction.

This is analogous to say if you need to buy something for 1 dollar and you hand the cashier 1 dollar. Easy. Now say you need to buy something for 1 dollar, but you need to pay in 100 pennies, digging them all out from different pockets. Some are in your wallet, and some are in your shoes for good luck; that is a cumbersome way to pay. Bitcoin can work the same way. To avoid this, you can consider reducing the number of Bitcoin transactions you make and sending larger amounts when possible.

For Ethereum:

  1. First and foremost, timing is everything, similar to Bitcoin, except that high network traffic impacts Ethereum more severely. Take a look at a site like ethgasstation.info and look at the Gwei numbers. Gwei is short for giga-Wei and is a denomination value for Ethereum, akin to Satoshis for Bitcoin and cents for dollars. When this site is showing high numbers, the network is seeing a lot of traffic/congestion. The site gives three numbers to help you know how high or low to set your Ethereum gas fees. Fast on the left, which is the most expensive but will get the transaction done the quickest, standard, and slow for the penny pinchers, which will be the cheapest but also the slowest transaction time.
Eth gas station

Image via ethgasstation

Most self-custody wallets like Exodus, Metamask and Trustwallet will automatically select a gas fee for you if you do not want to worry about it, but the gas fee that is automatically selected won’t be the cheapest option. Most wallets will allow you to set your gas fees as an “advanced” option. As shown in the image above, avoid setting too low of a fee, don’t try and set the fee below the slow number shown, as that can seriously ruin your transaction. I’m talking failed transactions and transactions that can get stuck for days.

Try and send your Ethereum transactions, which include every one of the tens of thousands of ERC20 tokens during off-peak times. Also, check sites like ethereumprice.org/gas to ensure you aren’t transacting during peak times.

Ethereum congestion

Image via ethereumprice.org

Ethereumprice.org also has a handy heat map that can help show you the cheapest times of day to transact in Ethereum, which looks like this:

Ethereum heat map

Image via Ethereumprice.org

  1. Organize Transaction types. As with Bitcoin, try and move assets as little as possible and combine transactions to lump sums if you can, as the fee is not dependent on the amount. Gas also varies depending on the type of transaction. For example, interacting with smart contracts is often a lot pricier so avoid interacting with smart contracts if possible.
  2. Find Decentralized applications (DAPPS) that offer discounts and reduce gas fees. Some Ethereum projects offer gas fee subsidies or minimal gas fees. Great examples of this are Balancer, KeeperDAO and Yearn’s V2 vaults. They can do this by batching individual user transactions together. Aave has also made impressive strides in this area with the upgrade to Aave V2.
Balancer

Balancer Announces Gas Reimbursements to Battle Ethereum Gas Fees Image via twitter.com/balancer

  1. Utilize Gas Tokens. Users can delete their storage variables on the Ethereum network and earn ETH as refunds for doing so. You can mint the gas tokens when the gas fees are low and redeem the gas tokens for ETH, which can be used to pay gas fees. You can learn about that process on gastoken.io
  2. Explore layer-two solutions. Layer two solutions were created out of necessity to battle the painfully high Ethereum gas fees. Most of these solutions involve moving transactions to side chains. You can learn more about this in Guy’s video on Ethereum Scaling, so I won’t go into detail on how they work here. Projects like Polygon, Loopring, OMG Network, Skale, ZK Swap, Cartesi, Optimism and Arbitrum are the primary Ethereum scaling solutions.
Ethereum layer 2

Image via Coin98 Analytics

Look for crypto platforms that utilize these scaling solutions for cheaper Ethereum alternatives.

  1. Kick back and wait for Ethereum 2.0 to roll out along with all the completed scaling solutions. Ethereum 2.0 is set to roll out this year, but a common misconception is that this will reduce gas fees. In reality, this is just the first step that migrates Ethereum to Proof-of-Stake. The developers are still going to have to deploy additional scaling solutions, but once that happens, we are all gonna be rockin’ out in Eth paradise. Though that may be a year or two away yet.
  2. I hate to say it, but you could reduce Ethereum fees by simply abandoning the network until the developers do something about the fee issue. Many crypto users have completely ditched ETH and now primarily use other networks like Binance Smart Chain, Cardano, Solana or Avalanche though each network has its pros and cons. Binance Smart Chain is incredibly cheap and efficient, but the trade-off is that it is about as centralized as a network can be, which is the antithesis of what crypto is all about in the first place.

Other Crypto:

If you are using Ripple XRP, Stellar XLM, or locking away for computing power with EOS or Tron, then you don’t have to worry about anything. Send XRP and XLM whenever you want with no fuss. Send Tron and EOS whenever you have enough CPU resources collected. For cheaper Proof-of-Stake protocols like Solana, Cardano, Avalanche, etc., and cheaper Proof-of-Work networks like Litecoin or Doge etc., the best thing you can do to make sure your fees are at their cheapest is to use the network during off-peak times. However, this isn’t as important with other cryptos as it is with Ethereum, as price fluctuations are not as significant.

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Conclusion

I hope that I was able to give you all a bit of clarity and insight here on understanding the different types of network fees that are associated with crypto transactions and different networks, and that you were able to learn something here today. When it comes to crypto, high fees can put a serious cramp on your crypto party, but following the steps in this article, you can save yourself potentially hundreds of dollars in fees for just a few extra steps. I use the Eth gas station every time I send an Ethereum transaction and always set it to the lowest safe fee shown and that move alone has saved me hundreds and only takes a minute!

To summarize and compare this to real-world uses, many people in the crypto community treat Bitcoin like gold. Stash it, horde it, and hide it away trying to move it as little as possible as this is like the ultimate savings account, money goes in and doesn’t come out until you need it. Ethereum, Solana, and Cardano are more akin to the fuel that you put in your car’s gas tank to get to work and run errands. It is common to keep ETH, SOL, and ADA on hand to fuel DeFi adventures, while also stashing as much as you can the same as with Bitcoin if you believe in the long term appreciation of these assets.

Then you can have cryptocurrencies on hand to use for payments that you can use like a bank account, money in, money out. For me, the most efficient ones are XRP, Litecoin and Dash, but really, any cryptocurrency that is widely accepted with low network fees can fill this role.

Anyway, that about wraps up this article. I hope you have found it entertaining, informative, and helpful along your crypto journey.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
Providing financial education to those who need it most has always been a passion of mine. While working as a Financial Advisor, I had my eyes opened to the world of crypto and its potential to help make the world a better place. I believe that blockchain technology can build a brighter future and am excited to be part of it. If you enjoy the hours of research I put into my articles and find them entertaining and insightful, please consider sending a tip as it really helps me out and I greatly appreciate it. BTC, ETH, LTC, XRP, BNB, DOT, SOL, VET, XLM, ALGO, AVAX, LINK, USDC, USDT, MATIC can be sent to tayler88.crypto
View all posts by Tayler McCracken -> Best Crypto Deals ->

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