Basic overview of fees

Question

Can someone explain fees in layman’s terms

I thought I would throw a few dollars into bitcoins more for a laugh than anything - but the fees are confusing me.

I googled best wallet for newbies & most people suggested Exodus as simple and easy for beginners.

Using Apple Pay I bought $100 at around 44k - I got $99 worth of coins and paid $1 fee (seems fair)

They are now at 48k and my $99 is up to about $109

I have no interest in cashing out, but still leaning my way around so thought I would check how much the fee would be to cash out.

From what I can tell, I have to use a company like coin base to convert to hard cash and so I’m looking at paying a transaction fee to send the money to coin base plus a fee to coin base for converting my Bitcoin to hard cash / depositing in my bank account.

The transaction fee exodus shows me to send my coins anywhere is $15 which seems a bit steep.

Would I be better off having a coin base wallet so I’m not having to pay that $15 when I want to cash out on top of cashing out fees?

Looking online people say coin base fees are a few % and exodus is 5% plus - but they are quoting me 15% (or is that just because I only have small amounts & it would be cheaper if I had $1,000)

I may throw $50 or $100 a month into BC moving forwards, nothing big, an amount I can afford to forget about for years or even lose large amounts of, but don’t want to lose 20% when I cash out between transfer & cash out fees!

Any help would be much appreciated

Answer 1

Currently, there is a lot of demand for bitcoin transactions, you're sort of looking at "surge pricing".

Transaction fees in Bitcoin are paid for the blockspace that a transaction occupies. This means that the fees for a transaction scale with the number of pieces of bitcoin (UTXO you spend and create, irrespective of the amount of value you transfer. Assuming that you have actually taken custody of your funds in your Exodus wallet when you bought them, you would end up having a lot of UTXO in your wallet if you buy in chunks of $50 to $100. This could cause significant transaction fees when you finally want to move your funds.

To mitigate these costs, you could proceed in multiple ways:

• Consolidate your funds: before you move your funds out of your Exodus wallet, send all your bitcoins to yourself. This will consolidate all your UTXO to a single piece. Create this transaction at a very low feerate. The transaction will likely take a long time to confirm, but most of your value will be preserved. After that, a more expeditious transaction to transfer your funds to another market or pay someone can be made at a higher feerate without as high of a relative cost.
• Buy bigger chunks: bigger chunks means fewer UTXO and less fees.
• Use a custodial market to buy: Buy on a custodial service instead, and withdraw at greater intervals whenever you have accumulated more bitcoin or when the blockspace market is less competitive.

If you want to find out more, I've written about the current situation a bit more here: https://bitcoin.stackexchange.com/a/99699/5406