Is it free to send cryptocurrencies such as Bitcoin?

The answer is yes, no, sometimes, and maybe, it depends. So let’s dig in and clear it all up!

Kyle Turnbull

October 15, 2021 · 4 min read

Is sending bitcoin free

Is sending bitcoin free

There are two ways in which it costs to send crypto. Firstly, Network fees which are the on-chain fee charged by validators. These occur on all transactions. Secondly, there are withdrawal fees, which is the fee charged by a central party such as Coinbase or Binance to withdraw your funds.

Every currency has a different fee structure, which varies based on its own factors. Usually the size of the transaction matters, but it’s not a set fee every time. For example, when you send bitcoin to someone’s bitcoin wallet, the fee will vary depending on how congested the network is.   

It’s important we start off by saying that, for large transfers, and both local and international payments, crypto usually comes out cheaper than the remittance industry. It’s important to also note that crypto fees cover both the sender and the receiver. It may be ‘free’ for you to spend money at your local businesses, but they are usually being charged a premium by their provider or bank, anywhere between 1-5%, sometimes higher. So although there are fees, a better deal for businesses usually means a better deal for everyone.  

Why do network fees exist? 

  1. Incentivize network operators: Some blockchains reward nodes for the work they do to secure the network.

  2. Disincentive for bad behavior: If transfers were completely free (as some networks do have), then there would be no effect if someone were to send millions of small transactions, in an attempt to block up the network. By leveraging game theory, even a small fee makes attacking a network costly, thus preventing it. 

  3. Deflationary pressure: Some currencies (such as Divi and Ethereum) use fees as a deflationary pressure. As the fees are burned, small amounts of the currency are being removed from circulation, and therefore scarcity increases. 

The 'Origin of the Fee' Problem in Proof of Work protocols  

At this stage, one of the biggest flaws in many blockchain protocols is that miners are allowed to select transactions based on the fee size of those transactions. For example, we’ll use the Ethereum network as it is currently experiencing insanely high fees as it migrates from proof of work to proof of stake. 

Even more, with huge transactions piled up in the memory pools of networks like Bitcoin and Ethereum, the laws of supply and demand almost always skyrocket the network fees or 'gas fees' for Ethereum.

Most other proof of stake currencies have negligible fees. In the last blockchain update, we (the Divi Project) launched a new fee structure, bringing fees down to incredibly small amounts. 

When are fees predatory or unnecessary?

In decentralized digital currencies, network congestion can create absurdly high fees. At the time of writing, Ethereum is having serious issues, rendering the network incredibly expensive to use.  However these instances are rare, and this specific example will correct itself in time. 

Centralized entities are free to charge whatever fees they wish, as there are very few alternatives. This is part of the reason cryptocurrency was invented. The purpose was to obviate these systems, and create currencies that needed no middle-person. However, until cryptocurrency is more developed, we still rely on these entities. 

It also happens in traditional arenas. For decades, the remittance industry has been able to keep developing nations under their control, through global financial regulations. They know people are desperate to send funds back to their family, and they have preyed on this, charging anywhere upward of 7% to move funds.

Digital currencies fix this. Don’t believe us? El Salvador bitcoin move could cost money providers $400 million a year in saved remittance fees. 

Tips to minimize your fees

  • In the case of withdrawal fees, the only thing you can really do is plan your movements ahead of time. Since withdrawal fees are a flat fee, and not a percentage, one large transaction is more efficient than 10 smaller ones.

  • In the case of network congestion, the only way to reduce your fees is to be patient. Wait until they are low enough for you! This can require patience, but as long as you don’t need the funds, it’s a good option. 

  • Pick currencies that have lower network fees (such as Divi), so you’re not spending so much to send. 

The short answer is no, the majority of cryptocurrencies are not technically free to send. However, most currencies have near-zero fees.

A few more things to consider

Remember that there may be other charges associated with your bitcoin purchase to take into consideration. For instance if you are going to buy bitcoin with a credit card and then send that bitcoin to another wallet there will be a fee for the credit card transaction in addition to network and/or withdrawal fees.

DIfferent providers will have different fees and some providers don’t allow you to send anything out of their “walled garden”. You cannot as of now send bitcoin from PayPal for instance. Fees may vary based on market conditions. If you are planning to use Coinbase (as an example) it is a best practice to login to Coinbase and review their official documentation just in case there have been recent changes. It’s also a best practice to login to the bitcoin wallet that you sent funds to (or check the block explorer) to ensure that the funds arrived in the expected destination.  

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    Kyle Turnbull

    October 15, 2021 · 4 min read