Mining cryptocurrency requires an immense amount of electricity to conduct. As such, environmental damage is the main hidden price you pay for dealing with blockchain technology. However, experts have explained that the blockchain is generally not meant to be efficient by design.

Other experts have also argued that future improvements in hardware will result in less electricity usage for cryptocurrency mining. It involves thousands of checking processes to confirm the transactions taking place in the system. Considering that one bitcoin can be worth  $46,000, or more, far more actually, the thousands of verifications you undergo would make sense.

Many people proceed to mine bitcoins for money, despite the environmental repercussions. However, they still face other hidden costs before acquiring valuable cryptocurrency. This article discusses five hidden costs you face when trading crypto.

At the same time, it presents some tips to avoid paying these extra fees. Finally, it discusses bitcoin’s energy consumption to explain why these extra fees exist. Learn more about these hidden costs to avoid paying hidden costs when mining cryptocurrency.

1: Transaction Fees

Think of cryptocurrency as a network much like a bank. There are cryptocurrency brokers that serve as intermediaries between the involved markets to facilitate the transaction. These firms or individuals charge fees to perform their services.

Cryptocurrencies operate on blockchains, which are decentralized systems. The blockchain comes with standard fees, known as transaction fees or network fees. These fees go to the miners who audit the bitcoins.

Blockchain transaction fees depend on their unique system. However, you can control how much you spend. Your wallet gives you the option to display how much you are willing to pay miners to audit your tokens.

How much you are willing to pay in transaction fees will determine how fast you get your cryptocurrency. Higher payments are more urgent than lower payments. You might want to get your bitcoins fast, especially if the exchange rate is favorable. In essence, you are paying a transaction fee to secure your crypto within a timeframe.

As mentioned, network fees are standard payments you make. So, there truly is no way to avoid them. You can limit your payments, but that takes away from your transaction’s urgency. Thus, you may end up waiting longer before you get a token, which may lose value considering the volatile market.

2: Wallet Fees

Cryptocurrency wallets are like your address in the blockchain. In the blockchain, you would create your wallet to generate your address, where you can receive tokens and send them to another address. Thus, the blockchain is a giant network for cryptocurrency transactions.

Managing your wallet is understandably complicated. As such, there are software solutions that offer safe token management services. This way, you can do without having technical programming knowledge to access your cryptocurrencies.

Most wallet fees tend to be minuscule around the 0.001% range, which you might not mind when depositing or making token transactions. However, you can avoid these unnecessary fees by looking for open-source solutions that offer free wallets.

Cryptocurrency advocates make these free wallets available so you can transact without relying on companies that manage basic operations. Look into your free wallet options before going for such companies that offer to handle blockchain addresses for a price.

3: Premium Fees

Similar to third-party wallet providers, there are premium services that simplify the process of investing in crypto. As a newcomer, you may prefer these premium services since they offer efficient solutions that make crypto exchanges as convenient as possible.

This convenience comes at a price. They would charge you for exchanging and storing your tokens on their website. Although you would get your tokens in a nearly instant process, they are still getting a cut for their services.

Some of these companies may claim to earn zero commissions and have no extra fees. Although that may be technically true, they would sell at higher rates than the open market. Since they know how to navigate the blockchain themselves, they have the advantage.

Consider going for premium services only if you want to trade tokens instantly. Perhaps the value of the tokens you mine is enough to make you not mind the increased rates some companies place on top of cryptocurrencies. Consider your free options some more to avoid these extra fees altogether.

4: Exchange Fees

Bitcoin exchanges are digital marketplaces where you can trade cryptocurrencies for other assets. Note that these are also businesses that deal with blockchains. Thus, you would pay for using their platform. At the same time, they may take percentages from deposits or withdrawals you make.

Crypto exchanges are good businesses that maintain large volume trades, and its sustainability in the market may tempt you to take part in their solutions. However, many companies take advantage of that popularity and excitement to make offers that do not necessarily offer the best exchange for you.

Just like other premium services, you can avoid this extra fee by reconsidering your options. Try not to fall for the traps that these companies set for newcomers and understand that there are more affordable and even free solutions.

5: Conversion Fees

Suppose you do take part in a cryptocurrency exchange. You would then face conversion fees. These fees depend on the company with which you conduct exchanges. They will have a unique rate for converting different currencies that you use when transacting cryptocurrencies.

For instance, you intend to purchase a bitcoin from a European exchange. This company only accepts euros but you have US dollars. Its conversion services may charge between 0% and 2% to handle the exchange. On top of using their platform, you end up paying extra.

Consider converting your money beforehand to avoid these extra fees. Calculate the difference between converting your currency independently vs through the exchange.

How Much Energy Does Mining Bitcoin Consume?

Mining bitcoins costs a total electricity volume of 30.14TWh. This figure comes from Digiconomist, a platform that highlights the unintended consequences of digital trends (like cryptocurrency). CBS News reported these costs using the platform’s insights. In 2017, the program also mentioned how bitcoin’s electricity consumption increased along with its price rate surges.

To put things into perspective, the total volume of electricity mentioned above provides enough energy to power 36,000 kettles. That amount exceeds the energy consumption of about 20 European countries. At the same time, bitcoin’s network consumes five times more electricity than what the largest European wind farm creates.

Why Does Mining Bitcoin Require So Much Energy?

Bitcoin requires a massive amount of energy to power its network. Its network has no centralized authority to confirm the transactions it sees. Thus, it needs this much energy to protect itself against fraud.

Miners back the bitcoin transactions. They use specialized computers to manage the transactions, devices which consume more energy than usual.

Bitcoin miners would then compete to solve the mathematical problems. Compensation will go to the first miner who finds a solution. Once the miners solve the computing problems, bitcoin transactions become verified quickly, and you get your valuable cryptocurrency.

Conclusion: How Do I Avoid Extra Fees?

Joining a mining farm may be the most efficient way to avoid extra fees associated with bitcoin mining. These farms involve large groups of miners in warehouses that utilize affordable electricity. This way, you would avoid relying on third-party crypto companies while mining sustainably. Learn more about our crypto mining farms to determine your next steps!

References:

1. https://futurism.com/hidden-cost-bitcoin-our-environment
2. https://www.cnet.com/personal-finance/crypto/heres-how-much-electricity-it-takes-to-mine-bitcoin-and-why-people-are-worried/
3. https://hackernoon.com/5-hidden-costs-when-acquiring-cryptocurrency-d64f92232321