Crypto Transaction Fees for Beginners
Obligatory Disclaimer: To modify a quote from Tim Ferris, “I am NOT a financial advisor, and none of this advice should be taken without speaking to a qualified professional first. Also, my results [are most likely] due to pure luck and zero skill.” But…this is working for me.
So, you’ve gotten your hands on your first crypto token. It was a good bit of work. You learned a lot. Maybe you had help from an awesome step-by-step guide, or maybe you figured it out for yourself. Either way, you’re a little richer (or a little poorer), and you want to get into the crypto game even deeper.
Not so fast! Before you become a seasoned crypto-investor, there is one thing you need to understand in and out: transaction fees.
Two of Warren Buffett’s most famous investing rules are: 1) Never lose money, and 2) Never forget rule number one. After a crytpo company uses up its hard-earned initial coin offering (ICO) millions, how do they continue to make money? The answer is simple: transaction fees.
These fees vary from token to token. Some are more expensive (as of the beginning of June, the average transaction fee for Bitcoin is around $4!) and some are extremely cheap (DASH and Litecoin transactions fees in June are averaging $0.11 and $0.14 respectively). The important thing to realize here however, is the real meaning of “transaction fee.”
Let’s say that you hold some SiaCoin (SC) on your favorite exchange (mine happens to be Bittrex). You decide you want to convert this SC to DigiByte (DGB), because you’ve seen it mentioned a lot on Twitter. The steps to do this conversion could look something like this:
- Withdraw your SC from Bittrex, and send it to ShapeShift (pay a Bittrex withdrawal fee)
- Convert SC to DGB through ShapeShift (pay a SiaCoin miner fee, and a DGB miner fee)
- Send your DGB back to Bittrex (depending on the token you’re depositing back to Bittrex, you may have to pay another miner fee when the exchange creates a new address for your tokens)
That’s a lot of fees! Why does it work like this?
The short answer is: Every company needs to make money. In an exchange like the one listed above, there are three companies involved, and each one wants a cut of your transaction.
On top of this, it’s worth noting that you probably bought your SiaCoin by converting Bitcoin or Ethereum on either an exchange or through ShapeShift. If that’s the case, you payed at least two, possibly three more transaction fees beforehand (the fee to purchase ETH or BTC, and the miner fee to convert to SC).
All this may sound terribly depressing if you’re new to investing in cryptocurrency. How are you supposed to make any money with all these fees? My answer is pretty simple.
Ask yourself these four questions before investing in any new token:
- Do I understand the tech/company?
- Would I use the tech/company myself?
- Do I see other people using this tech/company in 3 years?
- Do I have any type of advantage investing in this token?
And…
5. Do I understand the fee structure of the exchange I’m using, and of the token I’m investing in?
Picking an exchange is just as important as doing your research before investing. While your options are limited, some charge higher fees than others. Some exchanges are more secure than others, and some exchanges are faster than others. You have to decide what you’re willing to pay in exchange for security, speed, and ease of use. Investing in solid companies (and the incredible ROI with which you’ll be rewarded) will make up for the fees.
In addition, some coins come with perks that others don’t. SingularDTV’s coin SNGLS, for instance, is planning to pay its token holders in ETH as a reward for being a part of the platform.
Decred, on the other hand, rewards token holders with “interest” who participate in their proof-of-stake system.
So what exchanges have I chosen to use? I’ll tell you.
- I use Coinbase to purchase ETH or BTC with dollars to convert into other tokens. This is not the cheapest option, but they are secure, have good customer service, and you can complete a purchase instantly with a credit or debit card, instead of waiting on a wire transfer for 5–7 business days. You can sign up for Coinbase using my referral link here.
- I use ShapeShift to exchange my ETH or BTC for other tokens (like SC, DGB, etc). ShapeShift doesn’t charge a transaction fee to use their service, they don’t store any tokens or personal information, you don’t have to create an account to use them, and they respond to help tickets quickly. I’ve only ever had positive experiences using ShapeShift.
- I use Bittrex as my exchange of choice whenever 1) the token isn’t available on ShapeShift, or 2) I can’t easily create a local wallet (or use MyEtherWallet) to store the token once I’ve purchased it. Comparatively, Bittrex has decent fees, high security (always use 2-factor authentication), and is run by a team that comes well recommended (Zach LeBeau, CEO of SingularDTV, speaks very highly of the Bittrex team).
There you have it! Now that you understand how to purchase crypto, and you understand a bit more about transaction fees, you’re a bit more prepared to play the game.
Always invest in solid companies, go above and beyond with the security of your tokens, and your ROI will outweigh the fees nearly every time.
Happy investing!
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If you’d like to start investing in cryptocurrency, the easiest way is with Coinbase. Get $10 of free Bitcoin when you use this link — it’s my referral link — and get started now!
