Part of the goal of crypto and DeFi is disintermediating financial transactions and lowering the fees that everyone is forced to pay whenever they use legacy finance services.

It would really be a shame if, in trying to escape the downsides of traditional finance, we ended up with the exact same problems in crypto. The reality is that there are still some fees in crypto, as much as we all hate to see them. You’ll likely catch a funding fee, commission fee, and conversion fee, among others, but there are also smart ways to manage your crypto wallet and transactions that will cut down on the amount of fees eating into your profits.

Crypto wallet basics

Types of wallets

Whether you’re already stacking Sats or you’re trying to DYOR before jumping in, there are some things to consider in order to carefully plan your crypto wallet strategy. For example, there are multiple kinds of wallets.

Mobile wallets like Coinbase and Binance are digital crypto wallets you can use on your phone. Many of them have a crypto exchange on the same platform and are centralized, meaning the company holds your coins for you. They’re convenient, but centralized.

Non-custodial wallets are those that allow you to keep custody of your own coins and tokens. They don’t require KYC—instead, you access the wallet with a seed phrase. They can be digital wallets, like Trust Wallet and Metamask, or hardware wallets.

Hardware wallets like Trezor and Ledger are physical storage devices that look like USB drives. They’re a more secure way to keep your crypto, but they are a little more expensive and a little less convenient. Most people use them for long-term cold storage (offline storage).

coins

Types of fees

Once you get the lay of the land when it comes to different types of wallets, you’ll want to understand what kinds of fees to expect.

Network fees, or gas fees, are the cost of transacting on blockchain. Miners maintaining the distributed ledger receive commission fees for verifying transactions. Amounts vary depending on how many transactions are being requested at any given time, congesting the network.

Exchange fees are charged by the platform for various types of transactions. These could be conversion fees like maker and taker fees (trades that are immediately executed, versus those that are not), loans fees, or funding fees like withdrawal and deposit fees.

Considerations when choosing a crypto wallet

Every exchange has different commission fees and funding fees. Part of your strategy should be deciding which exchanges and wallets will work best for you. There are several things to consider in addition to what we’ve already discussed.

Where you live is a factor because some centralized exchanges and wallets are not available everywhere. For example, Binance is not supported in four US states. So, even if you identify a crypto wallet with low fees and features you like, it may not be available in your location.

How you buy crypto with fiat is also something to think about. Different platforms offer different on-off ramps for fiat deposit and withdrawal. Some are more expensive than others. For example, depositing fiat on Coinbase with a wire transfer costs a flat $10 fee.

Where you hold your crypto is important as well. If you keep your crypto on a centralized, custodial exchange or wallet, it’s not as secure as if you self-custody. However, fiat on-off ramps (if they exist) on decentralized platforms can be expensive. Make sure to consider miner commission fees and possible withdrawal fees for transferring your crypto off a centralized exchange into a non-custodial crypto wallet.

Examples of how fees work

Now let’s look at some practical examples of how fees can stack up.

You invest $1,000…

Let’s say you want to invest $1,000 into Bitcoin and you want to self-custody your Sats.

  1. You decide to deposit your $1,000 of fiat on a centralized exchange because, with an ACH transfer, there are no funding fees (hooray!).
  2. You buy Bitcoin and the exchange charges you a 0.5% conversion fee (in this case, $5).
  3. Now you send it to your non-custodial wallet. The network fee ends up being $8.96.

Just to get your $1,000 fiat investment converted to Bitcoin and stored, it cost $13.96. These fees can add up if you’re not careful.

Let’s look at another example.

NFTs

You mint an NFT…

Imagine you’ve created a really cool piece of art that you want to sell as an NFT. How much might it cost you in fees? First, you’ll need some ETH because most NFT exchanges run on the Ethereum blockchain. We’ll also use round conversion numbers for easy math, but remember that volatile crypto prices can change these numbers pretty quickly.

  1. You start out buying $100 worth of ETH. The exchange charges you a 3.99% conversion fee for buying it with your credit card. Now you have $96.01.
  2. You send your newly purchased ETH to your crypto wallet. The network fee works out to $7.46, so now you have $88.55.
  3. You mint and list your NFT on an exchange, which costs $6.30 in ETH gas.
  4. When your NFT is bid up by eager buyers, the ultimate ETH sell price equals $160. After the 2.5% commission fee, your profit is $156.
  5. To cash out your profits, you send ETH back to the exchange, which hits you with another $6.70 in gas fees.
  6. You then convert your ETH back into USD for a 0.5% conversion fee, totaling $0.75.
  7. Luckily there’s no withdrawal fee and you get your money back into your bank account, only having spent $29.20 in fees.

Now, that can seem complicated—and granted, it’s a little overwhelming at first. But there are ways to think ahead and plan so that you don’t end up spending more money on fees than you absolutely have to.

Tips for minimizing fees

Consolidate transactions

Look for ways to reduce the number of transactions needed. Whenever you need to move some crypto, remember that every blockchain transaction will cost a miner commission fee. If you can consolidate the number of transactions needed to get your coins or tokens where you want them, you’ll save on unnecessary fees. For example: dollar cost averaging into BTC over a few weeks and waiting to transfer a larger amount to your non-custodial wallet.

Send during low traffic times

Every network has different fees at different times. But you can find times when there is less traffic. This means that your transaction can go through for a lower fee. Weekends can be a fairly safe bet, but you can also use tools like Ycharts to see the number of transactions over the past several days to find traffic trends.

Adjust speed and gas if possible

Some platforms allow you to set desired gas prices for a transaction or adjust the transaction speed to lower commission fees. By lowering your acceptable gas fee or extending the time you’re willing to wait for your transaction to be completed, you can save on gas. Be careful, however; if you get too ambitious your transaction could fail or get stuck. Some people suggest a rule of thumb for Bitcoin minimums is one Satoshi per byte and no longer than two weeks to complete the transaction.

Crypto wallets compared

Now that you have an idea of how fees work with various wallets and networks, don’t let it intimidate you! Network fees are necessary to keep the blockchain secure and decentralized, and competition may help drive down platform fees in the future. In the meantime, let’s look at a few crypto wallet options and their trading fees.

Coinbase Pro — 0.5% trading fee

One of the most widely used and beginner friendly crypto wallets is the Coinbase Pro wallet. It also has an exchange on the same platform and easy fiat on-off ramps. You will need to create a regular Coinbase account before using Coinbase Pro, however. The conversion fee is also higher than on a lot of other exchanges.

Binance — 0.1% trading fee

Another popular crypto wallet is Binance, which has lower trading fees than Coinbase. One drawback, however, is that it is not supported in as many locations. It is also a centralized exchange, so keep that in mind if you plan to self-custody your crypto.

Robinhood — no trading fees

If you’re really looking to save some money, the popular stock trading app Robinhood now offers crypto trading for free. There are downsides, however, because you can’t send your crypto out of your Robinhood wallet, you can only buy, hold, or sell. There’s also a privacy concern in the fact that trading data is monetized—the real reason trading is free.

There are many other exchanges and crypto wallets to choose from. You can start by comparing exchange fees, seeing which ones are available in your location, and deciding which type of wallet will serve your needs. You may also want to read our guide on how to choose a cryptocurrency to buy, while you’re at it.

Summary

Figuring out what crypto wallet strategy works for you may take some thoughtful consideration, but if you take a bit of time to plan ahead, you can save a lot of money on fees. As the old saying goes, nothing in this world is free—but you can be smart and avoid paying more than you need to. You may feel slightly intimidated right now, but all it takes is a few explorations and transactions to start feeling comfortable trading, hodling, or whatever you choose to do with your crypto.

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Michael Hearne

Michael Hearne is the CEO of Decentral Publishing and the host of the Uncensored Crypto docuseries.