The price of peer-to-peer transfers: Explaining crypto transaction fees
Jul 23, 2025・4 min read
A hallmark of cryptocurrencies is their peer-to-peer (P2P) design. Instead of wiring funds through banks or other financial institutions, anyone with assets like Bitcoin (BTC) can instantly send coins to a destination wallet address. In theory, removing intermediaries should also eliminate fees – after all, who is there to pay if there are no centralized processors? In reality, however, traders quickly encounter multiple fees whenever sending crypto.
Even if crypto transaction fees amount to just a few cents, there’s no way to entirely avoid spending a little extra when using these digital assets. In this guide, we'll explain how crypto transaction fees work – and how you can potentially lower them.
What are crypto transaction fees?
A crypto transaction fee is the cost of processing decentralized digital asset transfers. These additional payments serve as incentives for node operators on P2P blockchains to maintain the security and integrity of the distributed payment ledger. Just as crypto transaction fees promote good behavior on blockchains, they also discourage malicious activity, such as Sybil attacks – where bad actors create fake identities or nodes to overwhelm the network and disrupt its operations.
While crypto transaction fees typically refer to the charges embedded in a blockchain’s protocol, they’re also a feature of trading platforms – like centralized cryptocurrency exchanges (CEXs), such as Coinbase – and Bitcoin ATMs. In these cases, a portion of the crypto exchange fees goes to the company operating the trading platform or ATM for deposits, withdrawals, and asset swaps. For more advanced crypto traders, more nuanced crypto transaction fees may apply in areas such as decentralized finance (DeFi), minting non-fungible tokens (NFTs), and trading crypto derivatives.
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How are crypto transaction fees calculated?
There’s no single formula for calculating transaction fees on blockchains or CEXs. Crypto investors must review fee structures on a case-by-case basis, depending on the digital asset they intend to send and – if applicable – the platform they’re using.
But even when traders understand how a cryptocurrency network calculates fees, there’s no way to know the exact cost until the transaction is confirmed. Several variables – such as the desired transaction speed and current network congestion – affect the final fee. In general, when blockchain activity is higher than usual, fees increase. Conversely, transaction fees tend to be lowest when network congestion is minimal.
Calculating fees: Bitcoin vs. Ethereum
On Bitcoin, network fees (gas fees) vary based on the transaction size in bytes, not the amount of BTC you’re sending. Users can add more BTC to their fee to prioritize their transaction in the Bitcoin mempool, as miners on Bitcoin’s blockchain typically favor higher-fee transactions to maximize their rewards.
By contrast, to calculate the cost per crypto transaction, commonly referred to as gas fees, the Ethereum (ETH) blockchain uses the following formula:
Gas Units (Limit) x (Base Fee + Priority Fee)
- Gas units: These represent the maximum amount of computational work a transaction requires, with simple transfers consuming less gas than complex smart contract interactions.
- Base fee: This is a dynamic fee that adjusts with network congestion. It’s permanently removed – or “burned” – with every transaction, adding an element of scarcity to Ethereum’s tokenomics.
- Priority fee: This is an optional tip users add to encourage node operators to process their transactions quicker.
Ethereum-based wallets like MetaMask often allow users to choose from various speed settings based on their preferences.
Checking fees in advance
Before sending cryptocurrency from an exchange or wallet on any network, users typically see an estimated transaction fee based on the selected speed and the current level of network congestion. Third-party sites like CoinMarketCap and Etherscan also provide real-time updates on average transaction fees across major blockchain networks.
How to pay the lowest crypto transaction fees
There’s no way to completely avoid paying fees for trading cryptocurrency, but there are a few strategies that can help lower them. By sending cryptocurrencies during slower periods or using alternative protocols, users can often move digital assets without paying high fees.
Search for low-cost blockchains
Research different protocols and average network speeds, particularly those that use next-gen technologies and proof-of-stake (PoS) consensus algorithms. Some blockchains, including Solana (SOL) and Tron (TRX), are known for maintaining low average transaction fees, even during periods of high network congestion.
Use Layer 2 scaling solutions
Explore Layer 2 blockchains (L2s) – decentralized networks built on top of existing blockchains that offer lower fees and faster transaction speeds. For example, the Lightning Network is an L2 on the Bitcoin blockchain that enables near-instant, low-fee BTC microtransactions. Ethereum also supports multiple L2s, including Optimism (OP), Arbitrum (ARB), and Polygon (MATIC).
Avoid times of high congestion
Wait for periods of low activity before sending funds on Layer 1 blockchains like Bitcoin or Ethereum. Use third-party tools like Etherscan to check average network fees and determine whether it's a cost-effective transaction time.
Compare fees on different exchanges
Review the fee schedules of various crypto exchanges to understand typical trading commissions. Running a side-by-side crypto fee comparison can help identify platforms with the most competitive rates.
Are crypto fees tax deductible?
Although recording every crypto-related fee can be a hassle, there may be tax advantages to keeping detailed records. Typically, transaction fees are deductible when buying or selling digital assets but not when simply transferring coins to another wallet. For example, if traders pay fees on a crypto exchange when swapping Bitcoin for Ethereum, those costs may factor into the coin’s cost basis and affect the sale proceeds. Fees paid on DeFi platforms for activities like lending and borrowing might also be deductible, depending on each user’s specific circumstances.
Using crypto tax software like CoinTracker can help maintain a payment trail for all these fees and calculate the accurate cost basis per cryptocurrency for tax reporting purposes. It’s also worth considering a crypto CPA who can provide more personalized guidance on the tax implications and opportunities associated with crypto fees each year.
Monitor every crypto move with CoinTracker
While not all crypto fees are tax-deductible, CoinTracker can help you collect the necessary details on your yearly transactions for IRS reporting. CoinTracker also offers features like a tax-loss harvesting tool to help identify legitimate ways to reduce your tax liability. With a CoinTracker account, you can review all your crypto activity and seamlessly submit it to TurboTax or H&R Block.
Discover the benefits of using CoinTracker’s Portfolio Tracker – get started with a free account today.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.