While long-term traders are unlikely to get affected by transaction fees, short-term traders and people actively using cryptocurrencies are often plagued with excessive fee structures.
This complaint has led to layer 2 solutions, where transactions can most quickly and cost-effectively be executed, as well as new blockchain platforms entirely (as was the case when developers migrated away from Ethereum due to high transaction costs).
In this article, we’re covering what transaction fees are, and taking a look at which cryptocurrencies offer the lowest transaction fees.
What are transaction fees?
Transaction fees are fees paid to the miner of the network to execute the transaction. While some networks differ in how they operate, transaction fees are consistent across the board. Looking at Bitcoin as an example, when a user sends BTC the transaction is entered into a pool of pending transactions known as a mempool.
The miner will then pick up a batch of transactions and validate them, checking to see whether the original wallet does in fact have the funds to send and if the wallet addresses are valid. Once the transaction is executed, the data relevant to the transaction is added to a block, which is added to the blockchain in chronological order.
As compensation to the miner for their time and electricity, they earn a small crypto transaction fee from each transaction as well as a reward for adding the block, known as a miner’s fee. This process also ensures the safety and integrity of the network.
When the networks are very busy, the cost of sending a transaction is increased. Users can also choose to add in a higher crypto transaction fee in order to prioritise their transaction in the mempool.
Transaction fees for smart contracts are based on how much electricity will be needed to complete the task. Typically, transaction fees on smart contracts are much higher.
Typically, the terms transaction fee and network fee can be used interchangeably. They both refer to the transaction fee necessary by the network for the transaction to get processed.
Exchange fees refer to something else entirely. Exchange fees are fees charged by the exchange in order to conduct the service. Be sure to check before conducting a transaction on an exchange as you might be required to pay a transaction fee (or network fees) as well as exchange fees.
How to pay less for transaction fees
A transaction fee is imperative to your transaction getting executed so it cannot be avoided entirely, however, there are ways to reduce the amount you need to pay.
Transaction fees increase when the network is busy, so sending your transaction while the network is quieter is a great way to reduce the transaction fee associated with the network. Typically the busier periods are during business hours in the United States.
Look out for Lightning Network for Bitcoin and layer-2 scaling solutions for Ethereum as these will provide a cost-effective solution to high transaction costs.
Which cryptocurrency has the lowest average transaction fee?
Let's take a look at some of the most popular cryptocurrencies and the average transaction fee associated with their platform.
Bitcoin's transaction fees have remained cheap throughout the last month, costing around $1.65 on average. The typical BTC transaction, on the other hand, can rise back up to $60 (as was the case in April 2021) when the market heats up. Opt for using the Lightning Network when looking for the lowest transaction fees and this is the cheapest means of transacting Bitcoin.
Over the last month, Ethereum has fluctuated between $8.5 and $13. Nonetheless, complicated swaps on popular decentralized exchanges on Ethereum may still cost hundreds of dollars. If looking for the lowest transaction fees, best give Ethereum a skip.
Cardano's transactions are less expensive as there is no need for complex computing to move them around. If demand increases, though, transaction fees on Cardano will rise as well. This is a good option when looking for the lowest transaction fees.
Solana and Algorand
Solana and Algorand's basic transactions cost just fractions of a cent. Even complex transactions cost peanuts. These are good options when looking for the cheapest transaction fees in the industry.
MATIC, Avalanche, and Fantom
MATIC, Avalanche, and Fantom have all emerged as viable alternatives to Ethereum due to high transaction costs. A single AVAX or FANT transmission costs less than a penny making them excellent options for cryptocurrency transaction fees.
Ripple and Stellar
Ripple and Stellar can have lower fees, often costing less than a penny provided the user has a minimum balance. These networks fall into the category of having the cheapest cryptocurrency transaction fees.
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