Crypto Currencies and Transaction Fees

I don’t use Uber very often, but I can still remember the first time I saw “Surge pricing” in action. It was a rainy and cold Thursday night and I was in a part of NY with little access to public transport. After consulting the app, I saw that it would cost $60 to get me home rather than the usual $20-$30. I walked to the subway.

Crypto currencies have their own version of surge pricing, set by the system and its users. It is one of the many ways in which they differ from traditional payment systems like PayPal or Visa. Those take a fixed percent of the transaction. In crypto land, that price fluctuates. Want to send a bitcoin to pay for a few online transactions? You will not likely pay exactly the same amount twice.

This is important, because over the last month median transaction fees for major crypto currencies have seen tremendous volatility, just like the asset prices themselves. We went back over the last 30 days, looking for peak median fees (in dollar terms) and compared those to median transaction amounts. Then we pulled what those fees look like now:

Bitcoin

  • December median transaction fee peak: $34. Median transaction value: $2,922
  • Transaction Fee Now: $5.85. Median Transaction Value: $1,582
  • Change: 1.2% fees (as a percentage of transaction value) at the peak to 0.4% now

Ethereum

  • January median transaction fee peak: $3.14. Median transaction amount: $364
  • Transaction Fee Now: $0.85. Median transaction amount: $53.
  • Change: Since transaction sizes have declined dramatically, Ethereum’s cost to transact is now 1.6%, higher than when nominal fees were larger ($3.17)

Bitcoin Cash (excluding an anomalous 2 day window in mid January)

  • December median transaction fee peak: $0.05. Median transaction amount: $645
  • Transaction Fee Now: $0.01. Median transaction amount now: $297
  • Change: 0.008 basis points at the peak to 0.0003 basis points now

Litecoin

  • December median transaction fee peak: $1.42. Median transaction amount: $1,136
  • Transaction Fee Now: $0.04. Median transaction amount: $784
  • Change: 13 basis points to 0.005 basis points now

Two takeaways from all this:

  • Different crypto currencies have very different transaction fees. Ethereum is currently the most expensive based on this analysis, at 1.6%. Bitcoin is in second place at 40 basis points and the other two are essentially free.
  • There is a high level of volatility in fees over even a short period of time. Note that we just pulled December and January data. Even in that window, median fees can vary widely.

If you are wondering when crypto currencies will see mass adoption for payment processing, solving this challenge is a prerequisite for that step. The technology is there to accomplish this. But it will certainly take some time.

Source for Median Transaction Price data: https://bitinfocharts.com/comparison/litecoin-median_transaction_fee.html#3m

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