Beginner's Guide to Fees and Hidden Costs in the Cryptocurrency Ecosystem
Cryptocurrency is often touted as better and cheaper money. This is true in places where fiat banking is often inaccessible, and large banks are allowed to charge high fees on services such as foreign exchange of currency (forex), maintaining an account, and ATM withdrawals.
In fact, a 2013 study by WalletHub found that the average checking account has 30 different fees associated with it – and about one bank in five doesn’t disclose them on its website.
Source: Money Crashers
The crypto ecosystem, however, also comes with a range of fees that might not be immediately apparent to new users who are just beginning their foray.
In this guide, we break down the fees and 'hidden' costs of being in crypto so that you won't be caught off guard — and to help you make better crypto decisions!
Fees for buying cryptocurrency
|Purchase||Flat fee||Spread||Debit/credit card fee||Bank forex||Total|
Fees and 'hidden' costs to look out for
- Credit/debit card fees by the platform
Some platforms charge additional fees for using a debit or credit card to fund your purchase. To save on this, you can opt to purchase your cryptocurrency using a bank transfer, if possible.
- Forex fees by your debit/credit card company
You should also look out for any forex fees that might be levied by your debit/credit card company for making a payment overseas, if you're not based in the same country as the platform. Where possible, use a debit/credit card with low/no forex fees or opt to do a bank transfer instead.
- The inevitable spread
Technically, spreads are the difference between the highest buy price and lowest sell price in the market. The spread that is enforced by the platform protects the platform from making a loss in selling cryptocurrency to you by selling under current market prices.
While you can't escape the spread when buying cryptocurrency from platforms like Coinbase, you may consider learning the ropes to start trading on exchanges that allow you to eliminate spread by putting in your own limit orders — where you can determine the price at which you want to buy or sell your cryptocurrency.
Why do people still use platforms like Coinbase to buy and sell cryptocurrencies? 🤔
Despite the relatively high fees, Coinbase reportedly has more than 30 million users to date since launching in 2012.
We chalk it down to this: Coinbase is extremely easy to use with a friendly user interface — there is almost no learning curve. You can make your first cryptocurrency purchase just by looking at the retail price and clicking on the
buy button. Plus, they're the largest cryptocurrency platform in the world backed by established Venture Capitalists, which automatically nets them a whole lot of trust.
In general, platforms like Coinbase make buying cryptocurrency as simple as buying a shirt online. Check the price, input your credit card details, pay and ta-da: you've got cryptocurrency!
Fees for sending cryptocurrencies from one wallet to another
Network transaction fees
Every time you send cryptocurrency from one wallet to another, you incur a network transaction fee. This is the fee that is paid to confirm your transaction on the blockchain.
The actual amount of fees vary depending on the cryptocurrency (Bitcoin, Ether, or Litecoin etc), the network capacity, and the market demand (i.e. how many transactions are looking to get confirmed at this point in time).
There is no way to escape this fee as it is an important feature of cryptocurrency – the network fees incentivise miners to do the work that verifies transactions on the blockchain.
Some hot wallets charge you a fee for sending cryptocurrency out of the wallet or platform.
To minimise paying out-of-wallet fees, do your own research (DYOR) before deciding on a wallet provider and try not to use such wallets for frequent transactions.
Cost of storing your cryptocurrency
In crypto, you are your own bank.
This means you can store your cryptocurrencies however you like: from using the most sophisticated hardware wallet on the market (approx. USD $100) to using MyEtherWallet or Blockchain.com's free wallet app.
The cost of storing your cryptocurrency depends on what you're most comfortable with. You'll probably take into consideration these factors:
- Ease of access to your cryptocurrency
- Responsibility of holding your private keys
Is cryptocurrency worth it?
Here are the reasons why it's a resounding yes! for us (but you should decide for yourself).
Cryptocurrency is limited in quantity
According to a 2019 Credit Suisse report, there are 42.2 million millionaires globally, measured in USD. This number grows exponentially year-on-year. This is why:
Unlike cryptocurrency, the money that we're used to today can be printed as and when it is needed by central governments, leading to inflation and loss of value.
In comparison, only 21 million people in the world will ever be able to own a full bitcoin because of the limited number of bitcoin (21 million, to be exact 😛).
Cryptocurrency is not controlled by a central authority
Today's digital money is controlled by banks that keep track of all transactions. There is complete dependency on each government's central bank in being accountable for the money.
If badly governed, this facilitates corruption and misuse of funds.
Cryptocurrency doesn't leave you at the mercy of big banks
Your bank's control over your money is most easily felt when the ATM network is under maintenance and you are unable to withdraw the cash you need. Or, when needing to send money to a different bank, you're charged an outgoing fee.
In more dire scenarios, banks can impose unreasonable restrictions on daily withdrawals and even choose to remain shut so that you are unable to access their services. They can even do this for three whole years. 😱
With cryptocurrency, you are your own bank and your own banker — which means you are in charge of keeping your money safe.
Simply put, we believe that cryptocurrency will be better money than fiat, the money we're used to today.