Fees are an essential part of blockchain networks and are designed to secure the system. In most cases, the fees are supposed to be minimal. When the price of cryptocurrency is rapidly increasing, the news is running stories about Bitcoin, the fees can start to get pretty high to make a transaction.
This is a common scenario during times of a lot of activity on the blockchain. The reason this happens is due to a couple of factors:
- The blockchain processes transactions in blocks. Once processed, the blocks get added to the chain. Only so many transactions can fit into a block.
- When more transactions are sent than fit into a block, a line forms of transactions waiting to be processed. These are called unconfirmed transactions.
- The blockchain is a secure system because miners and/or stakers collectively work to validate transactions are authentic and accurate. If you try to spend coins you don’t have, or if you try to ‘double-spend’ your coins, your transaction will fail. In order to provide an incentive for those securing the chain, they get to keep the fees.
- In a situation where activity is increasing, and a line is formed of waiting transactions, people will send transactions with higher fees in order to skip the line. This effectively creates competition, driving the price of fees higher
You might be asking yourself ‘Why don’t they increase the amount of transactions that can fit in a block?’ or ‘Will there always be high fees, are they working on any solutions to this problem?’
This issue has been a hotly debated topic in the crypto community. The issue revolves around scaling, and what is the best way to scale to a global level. One proposed solution is the creation of layer 2 networks, like the lightning network for Bitcoin, and state-channels on Ethereum.
The other proposed solution is to increase the size of the blocks, allowing more transactions. This is the approach taken by Bitcoin Cash, which hard-forked off Bitcoin in 2017. Learn more about what forks are in cryptocurrency.
We are still in the early days of cryptocurrency, and while fees can be high right now, in the future they should not be. Lastly, you can always send your transaction with a low-fee. It will still make it onto the blockchain, it just might take a while.