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What is a Transaction Fee in Crypto and How is it Calculated?

Transaction fees are imposed when you move cryptocurrencies from one address to another or buy and sell crypto. The fluctuation in transaction fees is tied to how busy a blockchain is. Users opting for higher transaction fees often experience faster transaction processing, as miners, motivated by these fees, prioritize and validate transactions quickly.

Crypto transaction fees apply to all blockchains, including those using a Proof-of-work (PoW) or Proof-of-Stake (PoS) consensus mechanism. The "crypto gas fee" is the most common type of transaction fee associated with Ethereum and other Proof-of-Stake networks. 

In this article, we break down crypto transaction fees for popular blockchain networks and show you how they're calculated.

Blockchain network fees comparison

Here's a thorough analysis of several fee structures across various blockchain networks


Bitcoin network transaction fees

Bitcoin transaction fees are primarily influenced by two key factors:

1. Transaction size: This refers to the amount of data involved in the transaction. As a block on the Bitcoin blockchain can accommodate a maximum of 4 MB of data, larger transactions occupy more block space. Consequently, larger transactions generally incur higher fees on a per-byte basis.

2. User demand for block space: Transaction speed affects the amount of fees users are willing to pay. Higher fees are typically associated with a faster confirmation time, reflecting users' demand for quicker processing.

To determine Bitcoin transaction fees, check the current rate and then multiply them with your transaction size. Bitcoin is divisible into Satoshis (SATS), with 100 million Satoshis equaling 1 BTC. 

Bitcoin transaction fees = current rate * transaction size

For instance, if your transaction size is 300 bytes and the transaction rate of 100 Satoshis per byte, your fee would be approximately 30,000 Satoshis (100 x 300 = 30,000).

What is a Transaction Fee in Crypto and How is it Calculated.png
Bitcoin transaction fee tracker by mempool.space

Using the 1 SATS = $0.0002616 rate, your transaction fees will be currently valued at just over $7 as of November 23, 2023.


Ethereum network transaction fees

The EIP-1559 upgrade transformed the Ethereum network payment structure, introducing a base fee for transactions, with a portion burned, reducing circulating coins and the remainder going to miners. ETH users can also "tip" miners for faster transaction processing and recording.

Under the new model, the formula for calculating transaction fees is:

Ethereum transaction fee = Gas units (limit) * (base fee + tip)

The gas limit represents the maximum amount of gas allocated for a transaction on the blockchain. By default, the Ethereum blockchain sets the gas limit at 21,000 units. Still, you can adjust this limit higher or lower in some crypto wallets.

The base fee represents the minimum ETH required for initiating a transaction on the blockchain. These fees are quantified in gwei, where one gwei equals 0.000000001 ETH.

The base fee on Ethereum is dynamic and fluctuates based on network usage. Increased activity raises the base fee, whereas reduced activity lowers it. The tip feature can also expedite your transaction by incentivizing validators with a higher reward. Tips are denominated in gwei.

etherscan gas tracker.png

 

The Etherscan Gas Tracker is a valuable tool by Etherscan, delivering real-time updates on gas prices every 14 seconds.

For instance, if the Etherscan average base fee were 25 gwei, and your gas limit was set to 21,000 units, the cost calculation would be:

21,000 units * 25 gwei = 525,000 gwei (equivalent to 0.000525 ETH). If one ETH were valued at $2,000, the resulting transaction fee would be $1.05.


Polygon network transaction fees

Polygon's fee structure revolves around two core components: StdTx and the Bor Fee Model. The Bor Fee Model collects fees in MATIC tokens for regular transactions and distributes them among block producers, ensuring quick and efficient processing within 2 to 4 seconds.

Polygon PoS Chain Network Transaction Fee Chart.png

 Transaction fees on the Polygon network are paid in MATIC. You'll need a sufficient MATIC balance in your wallet before executing any transaction on the network.

Polygon transaction fee = Gas units * (base fee + tip)


Binance Smart Chain (BSC) transaction fees

Binance smart chain uses a gas system to determine transaction fees. These fees depend on the computational resources required and are denominated in gwei—a minute unit of BNB equivalent to 0.000000001 BNB.

Transaction fees on BSC involve two key parameters: the gas price and the gas limit. The overall transaction fee is derived by multiplying the gas price by the gas used (gas limit) during the transaction. 

BSC transaction fee = Gas price * Gas limit


TRON (TRX) network transaction fees

TRON network's fee structure includes these three components: bandwidth, energy, and transaction fees.

Bandwidth cost = (transaction size in bytes / total bandwidth) * TRX balance

Energy cost = (smart contract execution cost / total energy) * TRX balance

Transaction fee = transaction size in bytes * fee per byte

Total transaction fee = bandwidth cost + energy cost + transaction fee 

Let's consider an example:

To send a transaction of 300 bytes and execute a smart contract that costs 60,000 energy units.

  • If you freeze 500 TRX for bandwidth and 1,000 TRX for energy.
  • The total network bandwidth is 100 million, and the total network energy is 200 million.
  • The fee per byte is set to 0.00001 TRX.

Using the formulas above, we can calculate the costs:

Bandwidth cost: (300 / 100,000,000) * 500 = 0.0015 TRX

Energy cost: (60,000 / 200,000,000) * 1,000 = 0.3 TRX

Transaction fee: 300 * 0.00001 = 0.003 TRX

In this example, your total transaction fees will be a sum of these costs, equaling 0.305 TRX.


XRPL (XRP) network transaction fees 

XRPL has two types of fees, including base fees and load fees.
Base fees are the minimum transaction costs required to perform a specific operation on the XRP Ledger. Today, the base fee for a standard transaction is 0.00001 XRP. Load fees are dynamic, are expressed as a multiplier of the base fee, and can be adjusted based on network conditions.  The greater the network congestion, the higher the load fees.

The effective transaction fee is calculated using the formula:

XRPL transaction fee = base fee * load fee

For example, if the base fee for a payment transaction is 0.00001 XRP, and the current load fee is 2.5x, the effective transaction cost would be: transaction fee = 0.00001 * 2.5 = 0.000025 XRP

Unlike other blockchain networks, transaction fees on XRPL are not paid to validators or miners. Instead, the fees are burned, decreasing the total supply of XRP over time.


Choosing transaction fees in Tangem Wallet

When sending crypto assets, the network fees you choose influence your transaction's priority in the queue of pending transactions. Miners prioritize transactions with higher fees. Opt for higher fees if you need fast confirmation or lower fees if you can afford to wait and want to save on costs.

What is a Transaction Fee and How is it Calculated.jpg

For your convenience, Tangem provides dynamic estimates for three fee levels for each network:

Priority: The transaction is expected to be included in the next block.

Normal: The transaction is projected to be included within three blocks.

Low: The transaction is estimated to be included within six blocks.

Tangem does not collect or extract fees when sending funds from the tangem wallet.

Factors that affect transaction fees 

— Network congestion: When there's a surge in the number of transactions on a blockchain, the network becomes congested, leading to increased fees as users compete for transaction processing. If the mempool is jammed with huge orders, the processing time will be slow, and the processing fees will be high.

— Blockchain type, block size, and speed: Different blockchains have varying block sizes and transaction processing speeds, affecting how many transactions can be included in a block, which influences fees. 

When the number of pending transactions exceeds the block size, you may need to pay higher fees to ensure your transactions are included in the block promptly.

— Transaction priority: Users can attach higher fees to expedite their transactions, especially when speed is crucial. Miners prioritize transactions with higher fees.

— Blockchain scalability solutions: Some blockchain networks have integrated scalability solutions to address the limitations of transaction throughput and high fees. The scalability of a blockchain, or lack thereof, can impact transaction fees. High scalability allows for more transactions to be processed, potentially lowering fees.

— Protocol design: Each blockchain may have a different fee structure determined by its protocol design. Most blockchains use dynamic fee algorithms to adjust fees based on demand.

Wallet settings: Some wallets allow users to choose transaction fee levels, giving them control over how much they are willing to pay for faster or slower transaction processing.

— Crypto price volatility: Prices of cryptocurrencies can fluctuate, and fees are often expressed in the native cryptocurrency of the blockchain network (e.g., ETH for Ethereum). When the crypto's value rises sharply, the corresponding fiat value of the transaction fee may also rise, resulting in higher costs.

Why are crypto transaction fees so high?

Crypto fees, particularly Ethereum gas fees, are often high due to several factors. One significant reason is Ethereum's challenges in scaling its operations. Even after the anticipated Ethereum PoS upgrade —The Merge — the network's transaction processing capability remains limited to around 10 transactions per second (TPS). In comparison, newer blockchains like Solana can process a much higher volume, reaching up to 3,000 TPS.

The slow confirmation speed on Ethereum, especially during periods of high network usage, contributes to high base fees for transactions. As a result, you might experience increased costs when the blockchain is heavily in demand.

Moreover, "gas wars" can occur. A situation where users — including influential Ethereum whales — may engage in bidding wars by paying substantial tips to expedite their transactions. This competitive environment can further drive up transaction costs.

Is it possible to pay below-average transaction fees?

The Ethereum team is actively addressing the issue of high gas fees by transitioning to a Proof-of-Stake (PoS) chain. This shift enables developers to focus on implementing Sharding — an innovative technology designed to ease transaction data congestion on the main chain.

However, the timeline for implementing strategies to impact gas fees on the Ethereum network remains uncertain.

Meanwhile, various Ethereum-compatible layer-2 chains provide users with swift and nearly feeless transactions. Platforms like Polygon, Arbitrum, and Optimism work with Ethereum but execute transactions on separate blockchains to mitigate congestion and reduce fees.

Several smart contract blockchains offer lower fees than Ethereum in the competitive landscape. Cryptocurrency projects like Solana, Polkadot, and Avalanche use the PoS model and currently maintain lower transaction fees, offering viable alternatives for users seeking more cost-effective options than the Ethereum network.

What is the difference between crypto gas fees and network fees

While crypto gas fees and network fees are both associated with the cost of transactions on blockchain networks, they are not always used interchangeably in common vocabulary.

Network fees

In most cases, "network fees" specifically represent the transaction costs on non-smart contract blockchains. These fees are similar to crypto gas fees but are not linked to the execution of smart contracts or dApps. For example, Bitcoin network fees compensate BTC miners who secure the Bitcoin blockchain — an example of a cryptocurrency where network fees are crucial.

Crypto gas fees

Crypto gas fees are a type of transaction fee that is unique to smart contract blockchains. Ethereum, as the pioneering blockchain for smart contracts, was the first to introduce the concept of crypto gas fees.

Gas fees.png

In this context, "gas" refers to the computational effort required to execute operations or run smart contracts on the blockchain. Users pay gas fees to compensate miners or validators for the computational resources.

While Ethereum initiated this practice, many competing layer-1 blockchains, including Solana (SOL), Avalanche (AVAX), and Polkadot (DOT), have adopted similar mechanisms.

Which blockchain has the lowest transaction fees?

Generally, blockchains using Proof-of-Stake (PoS) consensus mechanisms offer lower transaction fees than Proof-of-Work (PoW) blockchains. Examples of blockchains renowned for their low fees include Binance Smart Chain (BSC), Solana, and Polygon (formerly known as Matic Network).