It’s the era of centralized Cryptocurrency Exchanges, and it directly implies service fees. Although decentralized exchanges are emerging still the network fees are to be paid.
In case you aren’t aware of the cryptocurrency transaction procedure which is based on blockchain technology, here’s a short explanation. When you initiate the transaction, specialized programmers called miners will solve the puzzle to add the transaction block to the blockchain.
Miners use dedicated hardware, software and a lot of computing power to perform this action. As defined by the creator of cryptocurrency, miners will receive coins and some transaction fees as remuneration for this task. In all, we can relate this as network fee.
When you buy/sell or trade coins on an exchange, you are making cryptocurrency transactions and utilizing the blockchain. This makes you entitled to pay the network fees. An exchange provides you the platform to do so and hence eligible to charge a commission. This commission is presented to the trader in variant forms like trading fee, deposit fee, withdrawal fee and other miscellaneous fees. Each of this process makes use of the blockchain, and hence the network fees are applied.
Deposits are generally free of cost, but here the matter of concern is withdrawal fees. We have some exchanges in the market which offer the service to withdraw in equivalent fiat. It takes into account the fees of payment gateway as well. This is directly charged to the trader and hence resulting in the rise of withdrawal fees.
How is High Withdrawal Fees a problem for Traders?
Seldom traders who keep the coins on hold for a long run are the least affected with high withdrawal fees. Because they withdraw rarely and it does not seem expensive to them.
The real trouble is faced by the day traders who withdraw at the end of every day. They are the highest users of instant deposit and withdraw feature available at some of the exchanges. In case of day trading, the price fluctuations are comparatively low than that obtained at a larger interval of time. Hence, the profit gained is nominal, and a more significant portion of that goes in paying withdrawal fees.
During the bullish trend in the market, the rate of withdrawal is more as most of the traders will exit acquiring the maximum profit. But the high rate of withdrawal fees puts a cut on the expected benefit.
Another type of traders affected by this problem are the ones who trade on multiple exchanges. You must be wondering why one would feel the need to trade on more than one exchange. It is because we do not have any exchange at present which is capable enough to fulfill all the demands of crypto traders.
Some may lack the required coin pairs or liquidity and trading volume or dealing with fiat. To make the best out of crypto trading, the traders have to use multiple exchanges.
This requires the transfer of coins from one exchange to another and thus withdrawal. The increasing nature of withdrawal fees brings down their moral and of course expensive to transfer.
Traders’ Opinion
It is the very own opinion of the traders from the crypto community that the high withdrawal fees charged by current exchanges bother them for sure. It was revealed in an online survey conducted by Encrybit on current cryptocurrency exchange problems in which 18% of the participants were upset with high withdrawal fees.
What should be done to overcome the problem?
If you check out the withdrawal policies of present exchanges, you’ll find either a fixed rate or depending upon the amount you withdraw. The fixed rate is beneficial when a significant amount is to be withdrawn. Even the comparable withdrawal fee rates are a bit expensive to traders.
To overcome this problem, the exchanges can either set a moderate withdrawal fee rate or give more discount in the form of exchange’s token.
Thus, the potentially active traders are in need of an exchange with bearable withdrawal fees or significant discount schemes for storing/trading exchange’s token.
