Hidden Bitcoin Transaction Fees - The Real Cost to Trade Bitcoin

hidden bitcoin transaction fees

In this article, we’ll talk about the hidden Bitcoin transaction fees and the costs of transacting in cryptocurrency.

There are plenty of them.

Hidden costs such as:

  • transfer fees;
  • spreads; and
  • commissions are commonplace;

Not all the Bitcoin transaction fees are exorbitant, but plenty are.

Knowing where to look and what to look for can save you thousands of dollars on your crypto travels. Our goal is to help you pay low fees no matter if you are transacting in Bitcoin, Bitcoin Cash or any other digital assets.

You may have even heard about Bitcoins transaction fee crisis. According to this source, the median transaction fee peaked at $34 in December 2017 but quickly fell to $0.79 by February 2018.

But firstly, let’s look at how the cryptocurrency market is constructed from a pricing perspective. Is it like the Forex, or stocks or commodities markets?

It is a bit different because of the youth of the cryptocurrency markets.

Firstly, stocks have one price that everyone has access to because they are traded on a centralised exchange.

Similarly, wholesale foreign exchange markets have one price. While not on an exchange, the market is mature and transparent enough to have converged to an effective single price that the broader market can access.

In terms of commodity futures, there's each exchange, and everyone has access to the same price.

The thing about cryptocurrencies is not all the bitcoin networks are in alignment.

Between some exchanges, there might be hundreds of dollars difference between prices.

In busy times, the difference between exchanges can be even greater, particularly across different regional areas.

You may have paid up to $US800 too much for 1 Bitcoin

For example, there was a period where the Korean exchanges were trading at a US$800 premium to the US exchanges.

A similar pricing disparity occurred in Japan when trading crypto became very popular in Japanese markets. Consequently, the Japanese cryptocurrency markets were trading at an incredible premium compared to the rest of the world.

What to be aware of when converting from fiat currency to cryptocurrency

bitcoin transaction fees

As the crypto market is immature and exposed to volatility, there is not one centralised price for cryptocurrency.

Therefore, a level of awareness is required when you are buying crypto at a much higher price than most of the market. Often, converting fiat (AUD or USD or EUR etc.) to cryptocurrency will occur through an agent.

Agents differ from exchanges, as they are usually websites or businesses that simply facilitate the conversion of fiat currency into bitcoin.

When using an agent, you will typically pay a price considerably higher than prices quoted in most exchanges.

These higher prices are largely a result of the immaturity of the crypto market which leads to increased volatility.

Hence, agents need to charge a premium when converting the fiat you’ve paid them into crypto, so they don’t lose money and can cover their exposure to the market.

Converting your Aussie dollars to US dollars when travelling overseas

This is a little bit like when travelling overseas. Although the Aussie dollar might be 75 cents and you want to buy US dollars and sell some Australian dollars to fund your travel, the bank will charge you a significant spread for the pleasure.

For example, you might sell your AUD to the bank at 70 cents, and the bank will charge a 6-7% spread on the transaction.

Back in the 1980’s, this was reasonable as the volatility in the Forex markets was similar to the volatility in modern crypto markets. The fact that banks and Retail Forex providers still charge exorbitant spreads is because they can, not because they need to.

Cryptocurrency agents versus Cryptocurrency exchanges

For example, when buying bitcoin through an agent, the price to buy bitcoin on most exchanges might be US$10,000, yet they'll charge you US$10,500 to buy.

That’s the retail spread.

You’ll have to pay a spread, but shop around a little so that you know what you’ll be paying.

So, by now you’re probably thinking, “why would I buy bitcoin from an agent when I can buy directly from an exchange, and it will be cheaper?” While this is often the case, there is a little bit more to the story to consider before you make that leap in logic.

Cryptocurrency platforms showing a low entry price - Beware

Some platforms, whether exchanges or agents, will offer a great entry price. However, it's a bit like discount coffee at the supermarket – a way to entice you into the store, where they know you are likely to buy other goods when you’re there.

Once you’re on a particular exchange, you might be subject to large commissions and transfer fees.

So, as a consumer, it's a favourable idea to treat the low entry price with some scepticism and read the fine print.

Furthermore, whether it be an agent or a crypto exchange, look deeper into the total fee and charges that are associated with that particular platform.

What’s the difference in pricing between exchanges, agents and wallets?

An exchange makes most of its money by charging you brokerage or commission.

When you go to an exchange, you’re more than likely going to be trading out of bitcoin and into other popular cryptocurrencies.

Although, many exchanges don’t even accept fiat currency. They are purely digital currency exchanges where you need to transfer bitcoin onto the exchange, to trade out of bitcoin and into other cryptocurrencies.

Bitcoin transaction fee

Every time you do that, they charge you a commission, and that's where they make all their money. The commission on trades does vary between exchanges but usually sits around 0.25% per transaction. However, some of them offer reductions with greater volume.

Also, exchanges all charge a hefty transfer fee if you’re looking to move bitcoin out of the exchange to some other bitcoin wallet or provider.

The standard transfer fee is 0.001 bitcoin.

Therefore, at a bitcoin price of US$10,000 per bitcoin, the bitcoin transaction fee is US$10.

Other cryptocurrency transaction fees

As for other cryptocurrency transaction fees, it can be astronomical. Typically, the more illiquid the coin, the more they will charge.

For example, if you want to pay the bill for your Virtual Private Network (VPN) in bitcoin, and your VPN costs you 35 Euro for six months, then it will end up costing you closer to 45 Euro when you take into account the BTC transfer fee.

Paying bills out of a software wallet

However, if you paid the same VPN bill out of a software wallet, the transfer fee might only be US$0.10. This is considerably cheaper than an exchange, but also cheaper than using a credit card.

So for small transactions, you want to transact out of a software wallet, not an exchange, as it will be considerably cheaper.

An agent is often a necessary evil; they will be expensive getting into the market, but they also provide a means for converting your cryptocurrency back into fiat currency like US dollars or Aussie dollars. 

Costs of transacting with a credit card vs using Bitcoin

bitcoin transaction costs using credit cards

While we’re on the subject of credit cards, it is becoming more common for consumers to pay the credit card fees usually born by merchants. These fees typically range between 1-3% of the transaction value.

For smaller online merchants, the fees that they are required to pay their credit card and payment gateway provider are usually closer to 3%.

While it is still often the case that the consumer doesn’t see these costs, they are still paying them through higher pricing by the merchant.

Bitcoin fees considerably less than credit card fees

When transacting online using Bitcoin through a software wallet, the cost of transaction is typically a small fraction of the cost of using a credit card.

Using the VPN payment example, Bitcoin would cost approximately $0.10 while a credit card would cost around $1.00.

As network speeds improve in the cryptocurrency space, more merchants and consumers are likely to use them as a means of payment.

When to use an agent, an exchange or a wallet.

Use a wallet if you want to hold bitcoin or buy goods and services over the internet. Or alternatively, you can buy gift cards using Bitcoin right here on Digital Currency Markets.

How to avoid getting ripped off in the cryptocurrency space

The first thing is to be aware of Bitcoin fees and charges, commissions and spreads.

Take a little bit of time to do some research.

Most of the exchanges and most of the agents that you use will list their minimum fees at the bottom of their home pages.

It's becoming an industry standard, such you can find out the various costs associated with dealing with them.

In our Cryptocurrency exchange reviews, we cover the costs involved in buying and selling through each. Click the links below to find out more.

Bitcoin Fee estimates

Bitcoin by its design is decentralised. This means that no central authority holds sway over its issue and that it has no central point of failure.

As transactions occur on this decentralised network, they are confirmed by miners to ensure their legitimacy. This process takes time, which is why sometimes there are increased payment times and fees associated with transacting in Bitcoin.

There are websites set up to show current network speeds and costs of transacting in Bitcoin such as Bitcoin Fees.

You can see the costs across the network before transacting to see that the transaction fees quoted by your provider are consistent with the overall networks speeds and costs at the time.

Bitcoin transaction fee spreads can be a hidden killer

Fees and commissions are pretty easy to work out; it’s spreads that are more of a hidden cost and can be significant, particularly with agents.

If you are going to use an agent, it's a good idea to join up to either a charting package or even an exchange itself.

This is so you can see where the bitcoin price is trading at the time you transact with the agent (bitcoinwisdom.com is a good website for live pricing).

Then you can refer to the price you're being charged, and you can see how much you're paying the agent.

Buying goods and services using cryptocurrency

This is also the case when buying goods or services with cryptocurrency over the internet.

For example, when paying bills with bitcoin or cryptocurrency using BPAY on our website, we charge a 3% commission but have a negligible currency spread.

Whereas, our competitors might not charge any fees or commissions but will charge a currency spread often amounting to 6-7% of the transaction amount.

Is it getting cheaper to transact in cryptocurrency?

When we first started buying bitcoin, the commissions were 5%, and the spreads were up to 10%, so it could cost close to 15% to get into the market.

Now, while there are some providers who are still trying to charge these types of fees, it is becoming more competitive, and the bitcoin community is becoming more educated, so pricing is improving.

Once the banks open up a little bit or allow transactions to occur and make it easier for agents to sell bitcoin or cryptocurrencies to people, it's going to get much cheaper for the consumer.

Products like BPAY's Osko, and PayID, the new money transferring platforms, although designed to compete with the cryptocurrencies, will allow greater access by the public to transact in cryptocurrencies. 

With that, more competition will lead to lowering fees and tighter spreads for the consumer.




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Use Digital Currency – How it works

How our Bitcoin Gift Card works

What is a Bitcoin Gift Card?

A Bitcoin Gift Card is the perfect way for the newcomer to get their first Bitcoin. It comes with a paper wallet and simple instructions to set up a software wallet so that you can transact with Bitcoin over the internet. Bitcoin Gift Cards are available in AU$25, $50, $100 and $500 denominations.

Who should buy a Bitcoin Gift Card?

Anyone new to Bitcoin will find no easier way to get their first Bitcoin.

They can be gifted by an existing cryptocurrency enthusiast, or bought by anyone wanting to get involved for the first time themselves.

How can I pay for my Bitcoin Gift Card?

You can pay with either cryptocurrency through our coinpayments.net payment gateway, or you can use Australian Dollars through our POLI Pay facility.

Can I use a Bitcoin Gift Card to top up an existing software wallet?

Yes. When you receive your additional Bitcoin Gift Card, you can simply import the "Secret" wallet identifier from your Bitcoin Gift Card into your existing software wallet. This will move your Bitcoin from your Bitcoin Gift Card into your existing software wallet. 

What does my Bitcoin Gift Card include?

Your Bitcoin Deposit, wallet and key generation and network transfer.

How long does it take to receive my Bitcoin Gift Card?

Going through to checkout takes about 2 minutes. You won't find an easier process anywhere. Once you've placed your order, it can take between 10 and 60 minutes to receive your Bitcoin Gift Card depending on the speed of the Bitcoin network at time of purchase.

How our Flexi eGift Cards work

We have partnered with GiftPay, an aggregator of online deliverable eGift Cards in Australia.

Through our agreement with GiftPay, you are able to purchase a Flexi eGift Card from us, redeemable at a broad range of retailers in Australia.

Watch the Video to see how it works

What is a Flexi eGift Card?

A Flexi eGift Card is an electronic gift card that lets you choose where you'd like to shop! In the past if you were given a gift card for a particular shop but didn't want to buy anything from that shop, you were stuck. But now with a Flexi eGift Card, you get to choose at which shop you spend your gift. 

What's more, you may be able to split your Flexi eGift Card and spend it at different shops! For example, if you have a $30 Flexi eGift Card, you could choose to split it up into a $20 Myer eGift Card and a $10 iTunes eGift Card. 

Where can I spend it?

You can spend your eGift Card at a broad range of Australian retailers. For a full list of our retailers, click here. (page showing full list of retailer logos)

How do I redeem it?

Your Flexi eGift Card will be emailed to you. Click the link in the email to open your Flexi eGift Card.

Then convert your Flexi eGift Card into any combination of gift cards or vouchers up to the total available balance. How you redeem your chosen gift card depends on the card or voucher chosen.

Pay a BPay Bill

What Bills can I pay?

You can pay any bill that has the BPAY logo and Biller Code including credit cards.

Are there any payment limits?

Yes. You can pay a maximum of $1000 per transaction based on regulatory limits. You can however break up a bill into multiple $1000 tranches and enter the same biller and customer reference code.

How does the transaction work?

When you enter the amount you wish to pay, the BPAY biller code and your bill’s customer reference number, you will click through to our checkout.

At checkout, you will be asked to leave your details, which enables us to satisfy our legal requirements under the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017. This sounds ominous, but takes about 2 minutes.

When you proceed to payment, you will be shown the digital currency amount payable and the wallet address to send your digital currency to.

Once you have sent your digital currency to our payment gateway wallet, you will receive an email notifying you that your payment has been received. We then convert your digital currency to AUD and pay your BPAY bill on your behalf.

Are there any fees?

Yes. At checkout you will notice our 3% fee added to your bill amount. This is to help us manage the currency risk of a volatile digital currency market when converting to AUD for us to pay your bill. We use a third party payment gateway to enable the digital currency transaction. Our considerations when choosing a gateway was security, pricing (spread) and speed. You’ll note when at checkout (before proceeding to payment) that the price you receive on your digital currency is very competitive. Other digital currency BPAY facilitators charge up to 6% per transaction on the currency alone, which in our view is akin to highway robbery.

 

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