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So I recently bought some bitcoins. I just bought a small amount and mainly for education purposes. I bought it from a site called Coinbase.

Before this, I was told that one of the advantages of bitcoin was that it had very low fees. However, I feel like it's the opposite.

First, to buy the bitcoin, I have to pay a 3.99% conversion fee to buy. I understand that's just the exchange trying to make money - fair enough.

But then when I want to transfer the money to my paper wallet, there's another $3 they want to charge. And it seems that's the case for every transaction and every time you want to move your money around from wallet to wallet, that is a transaction.

So I guess the question is, what does it mean that transaction costs are low? Is that to mean that in theory, in the future it's got potential to be low cost? Is that to mean, its cheap but only for large transactions? Cause right now, it feels like it's much higher than any traditional form of exchange.

Even with VISA and MasterCard, they don't charge 4% exchange fee for purchases in another currency. And bank transfers are essentially free and instantaneous.

7

In the past, the cost to send a transaction (aka the transaction fee) was literally very low. For a long time, it was basically 0 for many transactions. That is what people meant by "transaction costs are low". While 0 fee transactions are nonexistent now, Bitcoin transactions are still lower in cost than many of the traditional ways of sending money.

A lot of traditional money transfers will charge a fee based upon the amount being transferred. However in Bitcoin, the fee is based on the size of the transaction data itself, not the amount transferred. This means that the fee for transfers of say $100,000 can be the same as the fee for sending $10. And those fees are usually in the order of $0.50 - $1.00. Furthermore, sending money internationally through a bank is usually more expensive than domestically. Transfers to an account at a different bank also costs more than transfers to accounts in the same bank. None of this matters in Bitcoin. The fee is only dependent on the transaction data itself, not who you are sending to, where they live, nor how much is being sent. This makes Bitcoin much cheaper than many traditional money transfer services.

With credit cards, there is actually a transaction fee, just that the consumer doesn't pay it, the merchant does. This fee is usually just rolled into the price of the product so you as the consumer don't notice that it is being paid. But the merchants do.

Furthermore, transaction fees with all traditional money transfer services is set by the service and unavoidable. But with Bitcoin, you can choose your own fee. You can choose to pay no fee or very little fee. It's just that paying a lower fee means that it will take longer for you transaction to confirm.

Lastly, Bitcoin transactions are irreversible and "settled" much much sooner than any of the traditional money transfer services. With credit cards, you can reverse a credit card transaction up to 180 days after purchase. With banks, it takes days for ACH transfers to clear. But with Bitcoin, a transaction can be final within 10 minutes. Since you can also change the transaction fee, you get some control over when the transaction is confirmed, unlike with other money transfers where you just have to wait for the bank or payment processor to handle it.

4

Fees were low during the early days of Bitcoin when both adoption and transaction volume was low.

During that time, many Bitcoin-based businesses and Bitcoin advocates promoted "low transaction fees" as a central benefit (and feature) of Bitcoin. They failed to mention (or perhaps foresee) that fees would necessarily increase along with network usage.

Low transaction fees is not a design specification of Bitcoin and, therefore, not a permanent feature. In fact, the white paper describes a "fee market" that should gradually substitute block rewards as a means of sustaining a healthy mining industry.

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