Do exchanges charge same withdrawal fee for all address types and why?

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Quote from: BlackBoss_ on July 16, 2022, 10:47:29 PM

I learn and get knowledge that in transaction size and fee, Legacy address is most expensive. Nested Segwit saves transaction fee but Native Segwit saves the most. Taproot is better than Nested Segwit but worse than Native Segwit.

Exchanges provide different address types for users: Legacy, Nested Segwit and Native Segwit and some have Taproot address.

They charge same withdrawal fee on all users and they do not mind what are types of address from deposit, receiving address.

Why they do not take into account address type and give users better withdraw fee?

You should know they are called exchanges for a reason and that fixed withdrawal fee is one of them, they are also centralized to some extent otherwise this thing can be done in a way that as soon as you insert your wallet address, their app should be able to detect the wallet address you are using and since most of the time they don't use junks of input to pay withdrawals, the withdrawals fee should be less than what they charge as a flat rate.
The exchange companies are milking users with this fee, most of their transactions are done in the range of 2-5 sats/vbytes and they are mostly done by batch transactions helping them reduce the fee instead of paying fees every time on a single transaction.

Charles-Tim

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Probably for convenience/simplification sake. They don't want their customer service wasting time answering question such as "What's difference between address 1..., 3... and bc1..." or "Why fee for this kind of address is lower?". It also ease burden of developing and maintaining their backend software.

I think it may be beyond that. I have used four exchanges before that include the withdrawal fee of altcoin pegged with bitcoin on the same lists of bitcoin withdrawal. If they can do that, including bitcoin address types should not be a problem for them. Like on Binance, even legacy and native segwit address are included along. I think the basic reason is just that they are all bitcoin network and the exchanges charge far higher than actual bitcoin transaction fee which makes it not necessary.

pooya87

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Quote from: 2stout on July 17, 2022, 05:12:56 PM

Another thing to consider is local and national law which could imply a fee cap in certain instances and scenarios.

I seriously doubt any regulatory body even cares about how much withdrawal fee the centralized exchanges charge. All they care about is getting their taxes and the users data so that they can monitor everyone who is using a cryptocurrency that comes to that exchange.

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Quote from: BlackBoss_ on July 16, 2022, 10:47:29 PM

Why they do not take into account address type and give users better withdraw fee?

It all depends on different exchanges and their policies.
Most exchanges introduced bitcoin segwit address at later stage, and some of them have different strategies for sending batch transactions and sending coins to multiple customers.
I think that FTX exchange is still charging zero fees for withdrawing Bitcoin on main chain (you can't get better deal than this), while others have different fees related with current state of bitcoin mempool and stuck transactions.
There is always an option to use Lightning Network to pay minimal fees, and some exchanges started to implement LN support (Kraken, Bitfinex, Okex, etc).
If you want to check withdrawal fees for most exchanges check out withdrawalfees website:
https://withdrawalfees.com/coins/bitcoin

2stout

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No, and this varies from exchange to exchange and in accordance with its business model. Another thing to consider is local and national law which could imply a fee cap in certain instances and scenarios. Also, another fee consideration is on-chain vs off-chain transactions.

The Cryptovator

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Whatever you are paying transaction fees isn't an actual fee anyway. When you will explore your transaction hash to the block explorer you will discover many transactions on the same transaction hash. This means they sent Bitcoin to multiple addresses at the same transaction. This means they spent very less fee on that. It's their business, they charge us higher than cost. That's the reason they set a default withdrawal fee for all types of address.

nc50lc

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Quote from: BlackBoss_ on July 17, 2022, 01:54:46 AM

Quote from: nc50lc on July 17, 2022, 12:31:15 AM

-snip-

Service fee. Is it easier for them to manage their hot wallets with Legacy or harder for them to manage hot wallets with Native Segwit?

If it is the same, not harder, not easier, why they did not move to Native Segwit?

Some of them are using Native Segwit for their hot wallet.
It's just their withdrawal fee isn't mostly for the on-chain transaction that they'll create to send their users' withdrawals.

What I mean by "Service Fee" is, it's more of a payment to them for using their service.
Exchanges are businesses not a wallet, they need a source of profit like from their withdrawal fee.

Just do not mistake an Exchange's "Withdrawal Fee" for Bitcoin transaction's "Transaction Fee".

Charles-Tim

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On exchanges, bitcoin withdrawal fee equals to bitcoin transaction fee + extra fee deducted by the exchange.

The extra fee deducted by exchanges are always too much.

You can make bitcoin transaction with less than 0.00005 BTC fee, but exchanges are charging over 0.0002 BTC and higher.

The extra fee is enough for them not to differentiate the fee charge for bitcoin address type.

Quote from: BlackBoss_ on July 17, 2022, 01:54:46 AM

Why they did not seriously support Native Segwit is big question.

Exchange not support segwit can mean the exchange users not able to transfer bitcoin to a segwit address. But you can now be able to send bitcoin to segwit address from most reputable exchanges.

There won't be a good reason exchanges are not supporting segwit, it's five years now since segwit activation.

BlackBoss_

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Quote from: NotATether on July 17, 2022, 01:39:16 AM

If exchanges charge a different withdrawal fee for each address, it will discourage people from using those addresses wiht higher fees. For example, if they charge segwit addresses more than legacy addresses. Most exchanges support only Legacy addresses anyway, so this is a moot question for them.

If they want to shill Segwit and make contribution for Segwit adoption, they can charge different withdrawal fees on different address types. Most expensive withdrawal fee on Legacy. Medium withdrawal fee on Nested Segwit. Cheapest withdrawal fee on Native Segwit.

Why they did not seriously support Native Segwit is big question.

Quote from: nc50lc on July 17, 2022, 12:31:15 AM

It's because the transactions for the withdrawals do not use their users' deposit addresses as inputs. They usually send it from their hot wallet.
The withdrawal fee isn't all used for the withdrawal transaction either, it's actually just a "service fee" for the Exchange, not based from the network's average fee.

If there's a benefit from using an Exchange's SegWit deposit address, it's mostly for that Exchange's consolidation transactions.
And for the network since SegWit input has lower vSize.

Service fee. Is it easier for them to manage their hot wallets with Legacy or harder for them to manage hot wallets with Native Segwit?

If it is the same, not harder, not easier, why they did not move to Native Segwit?

NotATether

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Quote from: BlackBoss_ on July 16, 2022, 10:47:29 PM

Why they do not take into account address type and give users better withdraw fee?

If exchanges charge a different withdrawal fee for each address, it will discourage people from using those addresses wiht higher fees. For example, if they charge segwit addresses more than legacy addresses. Most exchanges support only Legacy addresses anyway, so this is a moot question for them.

nc50lc

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Quote from: BlackBoss_ on July 16, 2022, 10:47:29 PM

They charge same withdrawal fee on all users and they do not mind what are types of address from deposit, receiving address.

It's because the transactions for the withdrawals do not use their users' deposit addresses as inputs. They usually send it from their hot wallet.
The withdrawal fee isn't all used for the withdrawal transaction either, it's actually just a "service fee" for the Exchange, not based from the network's average fee.

If there's a benefit from using an Exchange's SegWit deposit address, it's mostly for that Exchange's consolidation transactions.
And for the network since SegWit input has lower vSize.

BlackBoss_

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I learn and get knowledge that in transaction size and fee, Legacy address is most expensive. Nested Segwit saves transaction fee but Native Segwit saves the most. Taproot is better than Nested Segwit but worse than Native Segwit.

Exchanges provide different address types for users: Legacy, Nested Segwit and Native Segwit and some have Taproot address.

They charge same withdrawal fee on all users and they do not mind what are types of address from deposit, receiving address.

Why they do not take into account address type and give users better withdraw fee?

Topic: Do exchanges charge same withdrawal fee for all address types and why? (Read 180 times)