Network Fees vs Exchange Commission Fees

How come your crypto exchange fees have been skyrocketing lately?

Have you noticed that at times when you want to buy or just send crypto fees suddenly jump up? In the worst-case scenario, they may double or triple in price. The typical reaction of a user is to blame the exchange for messing with the commission fee, however, that’s not necessarily the case.

Whenever a blockchain gets overloaded, and that always happens when the interest in crypto picks, the network fees go high in price. Why does it happen, and how are network and transaction fees are different from each other?

A network fee is an obligatory fee that you pay to the miners. Whenever you want to make a cryptocurrency transfer, the data of this transaction needs to be added to the blockchain, and miners are the ones who make it happen. The network fee is a small amount of crypto that you pay to compensate for their work.

The network fees can be set manually since all the well-established exchanges and wallets have this option. The higher fee you set, the faster your transaction will be picked by miners. That’s why when the network gets overloaded, transactions get stuck in the pool, and fees skyrocket.

The good news is that Ethereum is in the process of transitioning to the Ethereum 2.0 model and Proof of Stake consensus algorithm promising to improve the situation with scalability and put an end to the ridiculously high fee rate.

Unlike Ethereum, Bitcoin (almost) has no working functionality to add conditions to the transactions, and thus running a smart contract on top of it is a lot harder. Technically, you can still run a smart contract on Bitcoin, but it won’t be a reasonable or easy thing to do.

On a large scale, in Bitcoin’s network, everything is straightforward: all the transactions are purely monetary, and the network fee depends on the total amount of the transaction. The luckiest miners who get to solve the block first get their block reward, which is currently 12,5 BTC, and also all the transaction fees from this block.

Unless you’re sending a P2P transaction — for example, transferring some money to your friend’s address — you’ll have to pay an additional fee to the exchange, wallet, or another third-party platform you’re using. They vary from service to service and the nature of your transaction. Traders pay Maker’s and Taker’s flat fee or a monthly percentage fee. Regular investors who don’t need the trading functionality normally pay a certain percentage of the total amount of the transaction.

Currently, in Mercuryo, we include the commission fee to the exchange rate displayed to the customers. The fee rate is 3.95% for buying cryptocurrency with a credit or debit card, and 2.95% when selling. This is a typical model for cryptocurrency wallets and exchanges, however, we understand that it might be inconvenient.

At the moment the team is working on building our new APIs, 1.5 and 1.6, to separate the exchange rate and the commission fee. This way users will be able to check their accounting knowing the exchange rate, the sum deducted from their bank card, and the amount they received to their wallet balance.

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