What are network fees?

Why should sending crypto cost anything if there’s no bank involved?

Think of a blockchain as a road with limited capacity. When many people want to get through at the same time, traffic builds up. On networks such as Bitcoin and Ethereum, users compete for space in the next blocks, and fees can rise.

Fees economically support the network’s operation and security by rewarding those who add blocks, but how they are distributed varies. On Ethereum, for example, part of the fee is destroyed through burning instead of going to the validators.

The calculation also differs from network to network. On Bitcoin, what mainly matters is the transaction’s size in data, not the value of the bitcoin you send. Ethereum uses gas, a unit that measures computational work. An interaction with a smart contract can require more work than a simple transfer.

Why it matters

If you transfer a small amount, the fee can make up a large share of the total cost. Fees are not necessarily a percentage of the amount you send. Two transfers of very different value can carry a similar fee if they require similar resources.

Your wallet usually shows an estimate before you sign. On some networks you can choose a lower fee, possibly at the cost of a longer wait. We find it useful to look at the total cost of the action: an app may need a separate token approval and then a second transaction, each with its own fee.

What to watch out for

An exchange’s withdrawal fee is not necessarily the same as the network fee. It is set by the platform and may differ from the actual cost of the transaction on the blockchain.

Also, when you send tokens from your own wallet, you usually need the network’s native coin to pay the fees, such as ETH on Ethereum. A token balance on its own may not be enough. Finally, a transaction on Ethereum that was executed but failed can still be charged for the gas it consumed, even though the action you requested wasn’t completed.