What are Blockchain Transaction Fees?

Meta Description: Users add a fee to transactions to incentivize a miner so they can add it into the blockchain. This article will explain everything you need to know about transaction fees and how they vary across blockchains.

Since the creation of most blockchain systems, transaction fees have been an integral feature. You've probably seen these when withdrawing, depositing, or transferring crypto.

Most cryptocurrencies use transaction fees for two critical reasons. For starters, fees help to reduce the quantity of spam on the system. Additionally, it renders large-scale spam assaults incredibly expensive to execute. Second, transaction fees reward users who assist in verifying and validating transactions. Consider it a prize for assisting the network.

While transaction costs are generally low for most blockchains, they may become highly costly depending on network activity. As a user, the fee amount you specify impacts the order in which your transaction is included in the next block—the bigger the confirmation cost, the faster the procedure.

Understanding transaction fees 

In Bitcoin, all outstanding transactions go to a memory pool (mempool) to be picked up by miners and added to the next block. When there is congestion in the mempool, miners will prioritize transactions with a higher fee, leaving the rest for the next block. That's why many cryptocurrency users choose to boost costs as needed manually.

On Ethereum, transaction costs are quantified in gas — fractions of ETH. Unlike Bitcoin, this blockchain supports smart contracts and decentralized apps (dApps); therefore, fees are critical. However, there are downsides, particularly if a gas fee is too low.

As for Ripple, its low transaction fees are a result, in part, of the lack of XRP currency generation by the company's miners.

So, what about dollar-pegged stablecoins? A USDT account or any other blockchain-based wallet capable of holding this digital currency does not incur transaction fees. However, converting USDT back to fiat might be costly.


Here's how transaction fees vary on some popular blockchains.

Numerous notable blockchain applications now charge varying transaction fees. The smaller the transaction charge, the greater the network throughput.

For example, today's average Ripple transaction cost is 0.00001 XRP, whereas it peaked at nearly 0.40 XRP in 2017. Since XRP is under $0.25, the charge is insignificant

Transaction costs on Ethereum are higher and might increase during network congestion. This occurred in 2017 to mid-2020 amid the DeFi frenzy. Fees reached an all-time high in August and then fell a couple of weeks later. 

Fees of $99 were stated to some persons, generating speculations that specific protocols might start looking for other blockchains. On Sep. 1, ETH miners made $500,000 in an hour. An update to Ethereum 2.0 is expected to bring a fairer cost scheme, but volume for transactions has risen dramatically.

Bitcoin, the world's biggest cryptocurrency by market capitalization, has also witnessed a significant spike in transaction costs this year. They were at $1 in July, over $6 in August, and over $10 in late October.

Litecoin, Bitcoin Cash, Cardano, Ethereum Classic, and other blockchains offer substantially lower costs, averaging around one penny. Tron's offers even lower fees comparable to Ripple's.

What influences transaction fees?

While the amount of money being sent or received doesn’t influence transaction fees, the final cost largely depends on the transaction size and block space demand. 

It's difficult for miners or validators on certain networks to include as many transactions as they'd like because of a block size constraint.

When a large number of users submit crypto money at the same time, the need for more block space rises, and the number of pending transactions increases.

Occasionally, demand for block space is so strong that networks become congested, and rates rise to unsustainable levels.

Larger transactions need more work and require extra space in the block. So miners favor smaller transactions. A larger transaction necessitates a higher charge in the following block.

Despite their initial complexity, blockchain transaction fees are simple and not worth overthinking. We hope this article has given you a better understanding of blockchain transaction fees and how they work.

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