Whether you're a fan of cryptocurrency or not, you have to recognize that it's the fastest growing asset class since 2017 began. Whereas the stock market delivered a well-above-average return in 2017 and has vacillated in 2018, the aggregate market cap of virtual currencies has soared from $17.7 billion at the beginning of 2017 to $297 billion as of March 27, according to CoinMarketCap.com. That's an increase in value of close to 1,600%, and it's a big reason retail investors have become enamored with this burgeoning asset class.
The 411 on cryptocurrency transaction fees
However, there's a lot about cryptocurrencies that the average American probably has no clue about. For instance, there's the fact that most virtual currencies have transaction fees attached. We're familiar with the idea of buying and selling stock and paying a brokerage firm for being the facilitator of that transaction, but similar (and additional) fees can be charged in the cryptocurrency market, depending on the token and exchange.
Today, we'll take a brief look at the types of transaction fees you may encounter if you choose to invest in cryptocurrencies, and we'll examine which cryptocurrencies, among the largest by market cap, offer the lowest transaction fees.
In total, there are three transaction fees you could be hit with when dealing with cryptocurrencies:
Exchange fees: This first transaction fee is one we should be familiar with, as it describes the idea of paying a "commission" to complete a buy or sell order. Most cryptocurrency exchanges tend to use a fixed-fee format, but the actual cost of transaction fees can vary by platform. In essence, it's always smart to do some homework and find out which crypto exchanges offer the lowest transaction fees.
However, another model known as maker-taker exists within crypto exchanges that can cause transaction fees to fluctuate, as described by Hype.Codes. The maker (seller of cryptocurrency)-taker (buyer of cryptocurrency) model charges a variable fee based on your amount of trading activity. If you're an active trader, or one who has transacted a high dollar amount over, say, a 30-day rolling period, you as the maker may qualify for a reduced transaction fee.
Network fees: Next, you may be required to pay transaction fees in order to incentivize cryptocurrency miners. Miners are nothing more than persons with high-powered computers who are charged with verifying and validating transactions to be added to a blockchain. In short, they make sure that tokens weren't spent twice and that transactions are indeed true.
The validation of these transactions can vary by network, with miners setting their own price, and investors or crypto users choosing whether or not to accept it. Of course, the obvious should be stated: The lower transaction fee an investor or crypto user is willing to pay, the longer that transaction could take to be validated, as it'll be a low priority for miners.
Wallet fees: Lastly, it's possible you'll pay fees to store your cryptocurrency in a digital wallet. The software used to develop wallets, as well as updates, isn't free, meaning you might owe a nominal amount to store your cryptocurrency.
Which cryptocurrencies sport the lowest average transaction fees?
But the big question probably on cryptocurrency enthusiasts' minds is this: Which virtual currencies offer the lowest transaction fees, on average? According to data found at BitInfoCharts.com, this was the average transaction fee breakdown for March 26, 2018, presented in order of descending cost:
- Monero: $2.587
- Bitcoin: $1.184
- Dash: $0.363
- Ethereum: $0.347
- Litecoin: $0.198
- Bitcoin Cash: $0.097
- EOS: $0.0105
- Ripple: $0.0037
- TRON: $0.0000901
First of all, yes, there's some arbitrariness to this data. Not all large cryptocurrencies are included in BitInfoCharts.com's data pull, and some virtual currencies over a $1 billion market cap were left off by yours truly to keep this list from growing to be a mile long. However, some very clear trends emerge.
For example, you'll note that privacy coins Monero and Dash are among the most expensive in terms of transaction fees. Adding extra layers of anonymity to protect sender, receiver, and transaction-amount data from being traced isn't cheap.
You'll also note that some of the most popular networks have comparatively higher transaction costs. Examples include bitcoin at $1.184 and Ethereum at $0.347. Miners on these networks understand how popular these virtual currencies are with businesses and consumers, so they have some degree of pricing power when setting their validation fee. If users don't choose to accept this fee, they could be in for a long wait.
By comparison, Ripple and TRON have some of the lowest transaction fees around. Ripple's niche focus on financial institutions sort of narrows the XRP token's use as a mainstream currency. However, Ripple's blockchain and ability to expedite on-demand liquidity for financial institutions for costs of just a fraction of a penny make it a popular choice for cryptocurrency investors. Not surprisingly, it's currently the third-largest virtual currency by market cap, and briefly surged to No. 2 in January.
As for TRON, its low costs revolve around the expected release of its own main net blockchain (i.e., its proprietary blockchain). A beta version known as Exodus is expected to launch on March 31, with the official launch of main net recently moved forward to May 31 from July 1. It's also expected to sport fees of around a millionth of a TRX (the TRON token). TRON's ability to execute its main net launch, as well as get enthusiasts utilizing its token, will ultimately determine whether these low transaction fees remain sustainable, and if they at all matter in the long run.