5. Withdrawal Fee
is the fee which is charged by the exchange to withdraw your cryptocurrency to the outside of exchange to your wallet or websites, payment networks, other exchanges etc.
Whenever we send cryptocurrency to another wallet of self or others, a record known as transaction is generated, which is to be validated and inserted in Blockchain by methods such as Mining or POS, there Miners/verifiers who validate your transaction are not only rewarded by Block creation reward but also with transaction fee. In many cryptocurrencies where concept of Block reward does not exist, Transaction fee is the sole reward of miners.
So when you withdraw your cryptocurrency from any exchange they usually charge withdrawal fee in name of covering the cost to send your cryptocurrency off-exchange and on blockchain network. However withdrawal fee is not fully used to process your withdrawal and most of time Cryptocurrency exchanges earn huge profits by much of withdrawal fee, at the cost of users.
For example, you want to withdraw some BTC to your wallet, whenever you will send the same from your Desktop or website wallet the fee is usually small just 0.00005 BTC for regular transaction and 0.0001-2 for priority transaction(except some times when high volume of transactions raises fees). However, getting your funds is not so cheap from a cryptocurrency exchange with withdrawal fee ranging from 0.001-0.005 BTC. which is 20-25 times more than the usual fee. This example just informs about withdrawal fee of exchanges for Bitcoin, For other cryptocurrencies withdrawal rate is considerably high and for some crypto just excess.
Withdrawal fee is not standardized in crypto currency world, Some cryptocurrency exchanges charge a Flat fee like 3 USD equivalent fee for withdrawing all cryptocurrencies. while others charge different withdrawal fee for different cryptocurrencies leaving you in suspense regarding it.
Benefit of higher withdrawal fee to exchanges-
It is beneficial to crypto currency exchange in many regards, while the same is highly detrimental for investors/users especially the smaller ones.
- Higher withdrawal fee leads to few withdrawals by users keeping cryptocurrency within exchanges leading to vast reserves for exchanges.
- Higher profits to exchange due to high fee which is not fully used just for transaction.
- Lesser transactions leading to less resource/manual resource usage, which is cost-efficient.
- Lesser transactions are needed to move funds from cold wallet to Hot wallet of exchanges.
Hence Higher withdrawal fee while fattens wallets of crypto exchange, also makes Investors a small loss every time they withdraw cryptocurrency from an exchange account.
While some percent high charge in the form of withdrawal fee for a transaction is justified, Much higher fee is detrimental to users and crypto currency world and shows "maxify profit from everything" attitude of crypto-exchanges.
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