Transaction fees

Transaction fees

For everything that is saved to the blockchain, the sender, receiver, or both, pay gas fee. This gas fee is then destroyed or distributed across the network; according to how this is described in the smart contract. Smart contracts can be viewed on the blockchain and the actual code is there to be seen; so as long as you check these resources, unforeseen events will be extremely limited.

Paying gas fee

A blockchain network is, in most cases, equipped with the main currency. This is also the currency in which the gas fee will be charged. Networks have different methods of handling the fee, which includes destroying it, locking it up in certain wallets for later (pre-defined), or providing liquidity to an exchange. The initial “how and why” is described in the whitepaper – a paper which states the philosophy, research, and roadmap of a cryptocurrency.

Gas fees are measured in Gwei – a number that indicates how easy it currently is to process the transaction. The Gwei is based on how busy the network is and the many miners or stakes there are to validate the transaction. Bigger or more complex transactions do always require more gas fees. The smart contracts of dApps (decentralized apps) do most often increase their gas fee to earn and/or provide liquidity; so it is always wise to check the current gas fee for the network, app, and time you are operating it.

In many cases, paying the gas fee also includes destroying tokens. This has a deflationary effect; hence every transaction destroys crypto coins, but not the underlying liquidity. When a lot of volumes are processed in those kinds of contracts, the price of the coin will rise as its supply will drop.

Exchanges have lower gas fees

This is because the trades that are made within the exchange are not transactions on the actual blockchain it represents. For Ethereum the gas fees have been rising steadily and currently, $17 per transaction is a bargain. There are decentralized platforms out there to minimize those costs, but they almost always work on a specific chain and thus only for select pairs of tokens.

Non-native tokens

A non-native coin can mimic the functionalities of the chain it was built on — which is called the minting of tokens. Popular exchanges and dApps (decentralized apps) are almost always equipped with their token. It also reflects a modern way of how we fund companies by trading stocks; since the smart contracts can be set and “to be forgotten”.

Some modern exchanges, like Coinbase for instance, provide the customer with a very low transaction fee, or even no fee at all at certain pairs. But beware you will not receive a 1-on-1 rate on the chosen pair; it will have a spread due to the changing values; so in the end you’ll also pay transaction costs, if it’s stated 0 on the final screen, you might want to prepare yourself for trading with a huge spread.

Tokens can add new functionalities, or act as a utility or reward on an existing blockchain network. To make a new token, all it takes is an image, name, ticker (abbreviation), the creation of addresses, and paying the network fee (in the blockchain’s native token). Later coins can be marketed and this is mostly done at online forums, ads, and message boards like Reddit. For a new project to be taken seriously the following should be provided:

• A project webpage
• A (logical) whitepaper
• The developer, or team behind it (not necessary, but a very big plus)
• The developer wallets should be locked, so they cannot “rug pull” – i.e. run of after a surge in sales, leaving everyone with worthless coins

It is also common for new projects to start with a high number of coins and burn these until a certain threshold. By doing this people can buy millions of coins in the initial phases which then slowly becomes a bigger percentage of the circulating supply. This will also affect how we see the value per coin or translate to something physical like buying a loaf of bread. To buy a loaf of bread with Bitcoin you might spend something like

Bridging chains

Let’s take a few blockchains for example Binance has Binance Smart chain and Ethereum has the beacon chain. Both chains have smart contracts which enable the trading of multiple cryptocurrencies and the gas fees are paid in Binance Coin and Ethereum. There are apps which “wrap” the value of a token that does not exist on that chain, so that the underlying value can be transferred from chain-to-chain. Before doing so, make sure you have done your research first.

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