An issue that popular cryptocurrencies (like Bitcoin and Ethereum) sometimes face is high transaction fees. Why does this happen, and what can you do about it?
What causes an increase in crypto fees?
Blockchain transactions are processed by a network of nodes that work together to validate each transaction. These nodes are incentivised to process transactions by earning fees in the form of cryptocurrency. When there are more transactions on the network than usual, fees go up as people compete to have their transactions processed more quickly.
A common cause for increased activity is when the price of a particular cryptocurrency increases quickly. More people tend to move their funds around during these periods, leading to a surge in transactions and higher fees.
Similarly, when there is a lot of hype around a particular blockchain project, more people may try to participate in its ecosystem, causing higher fees as everyone competes to transact. For example, Bitcoin fees surged in May 2023 as a result of the growing popularity of BRC-20, a new Bitcoin-based protocol.
In short, anything that rapidly causes more people to transact on the blockchain will lead to a surge in the fee you’re charged for sending crypto.
Luno’s dynamic fee for sending crypto is designed to be priced competitively with up-to-date blockchain fees, so when those fees go high, the fee you’re charged for sending crypto increases as well. If the fee were too low, your transaction could become stuck indefinitely while the blockchain’s nodes validate all the other transactions that pay them more.
Note
Blockchain fees are based on how much demand that blockchain is under. This is unfortunately not in Luno’s control.
You’ll always see what fee you’ll pay before confirming that you want to proceed with the transaction.
What can I do to avoid high fees for sending crypto?
One option is to simply wait for fees to go down before you send. This is not always possible if you need to send crypto quickly, but it can be a good strategy if you’re okay to be patient. Fees can also be slightly lower during “off-peak” hours, for example, when the US is asleep.
If you’re sending crypto to another exchange, it might be worthwhile to sell your crypto on Luno for one of the cryptocurrencies that tend to have lower send fees, such as Litecoin or Ripple. You can then convert back to your preferred crypto on the other exchange. Of course, you’ll still pay fees for buying and selling, but that could potentially still be cheaper than an inflated send fee.
Finally, it can also be more cost-effective to send one large transaction rather than several small ones. Send fees are calculated based on blockchain activity, not on how much crypto you’re sending, so you’d pay the same fee for a small transaction as you would for a large one.