Crypto isn’t quite as simple as just buying and selling. There are a lot of hidden costs, which you should know about before making an investment.
Making money through crypto doesn’t seem that hard, right? All you have to do is invest and sell when you can make a decent profit out of it. But it’s actually not all that simple. There are several hidden fees that go into every single transaction that you make.
Even if you might not make a profit from your crypto, someone is always making money off of your transactions. Let’s break down some of the hidden charges that get tagged on to you every time you make a crypto transaction.
Transaction fees/ Miner fees
To keep a cryptocurrency’s services up and running, crypto miners charge a certain fee. This is called a transaction fee. Different crypto networks have different transaction fees. Crypto wallets allow you to set your own transaction fees.
However, there isn’t quite as much of a choice as there seems to be. The lower rate you pay, the longer your transaction will take to go through because miners prioritize transactions that pay them a higher fee. For someone using crypto to make large financial transactions, transaction fees make a negligible difference. However, if you’re just a transaction of say, US$5, then this fee would put a dent in your pocket.
Exchange fees
To use a crypto exchange, you need to pay a certain amount as exchange fees. These fees cover the cost of holding, trading and transferring coins. Exchange fees can vary between different exchange platforms. Some of the fees that exchanges can charge you include a deposit fee, trading fee, a withdrawal fee and the spread.
The deposit fee is usually free if the money is directly transferred from a bank. Exchanges charge 2-5% if the money is transferred through a credit or a debit card. The trading fee can either be a flat amount or can be a percentage charge of your entire traded amount. The withdrawal fee is incurred whenever you pull money out of your exchange wallet and move it to your bank account, another platform or another person’s wallet.
The spread refers to the difference between what specific cryptocurrencies cost and how much you pay or receive when you buy or sell respectively. Crypto experts warn that the spread is the real “hidden fee” attached to crypto. What makes the spread extremely complicated is that its value can vary when trading between different cryptocurrency pairings.
The key takeaway from these two fee segments should be that you must be aware of the fine print when making crypto transactions. Knowing what the various costs attached to cryptocurrency are will help you save your hard-earned money and make the most out of your investments.
Header image courtesy of Unsplash