Topic: Old story. Exchanges get profits from users' withdrawal fees. (Read 530 times)

That's true, but they usually don't over-pay as much as they charge the user though

Because having lower withdrawal fee creates incentive for traders who want to transfer funds between exchanges to use that altcoin which in turn will give the exchange some extra money (the trading fee to exchange their bitcoin to that altcoin). Additionally there aren't that many altcoin withdrawals from exchanges so the revenue won't be that good.

The reason in my opinion is laziness and maliciousness otherwise when they charge the same amount of fee but batch the transaction they end up paying even less fee which translates into more profit.

I knew and as I said, they want 1-attempt action and finish it (Replace-by-Fee is marked as No). Hence, the 100% higher transaction fee is acceptable if taking the core approach of exchange: Don't want to waste resources and replace transactions to save fees.

The rest more than 90% of withdrawal fee after a deduction for transaction fee goes to their service operation, maintenance, technical things. It is fact and a thing to accept before people start to use exchanges. Fair or not fair for both sides (exchanges or customers), I don't bring it here. My message for this thread readers is beware of this fact and try to use non-custodial wallets if they are not trading.

I know there are alternatives to withdraw funds (in altcoins): Dogecoin, Litecoin, XRP, TRON, etc. Some alternatives charge withdrawal fees but almost zero in USDT value. It is not the main purpose of this thread but as someone are discussing about it, I admitted I used alts for my withdrawals if possible but for every batch, it is not a huge fund. If I move a huge fund, I use bitcoin.

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You are correct. I know some crypto gambling sites waive the fee but not sure about exchanges. All and most are different in meanings and I should use most (corrected it already). I used ftx, not much and did not make withdrawal with BTC so I did not notice it. Thanks.

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All cryptocurrencies (or most ? -- if I missed something) charge fees for their transactions. Fortunately, the transaction costs are different and partially depends on value of each cryptocurrency. A transaction fee with one Dogecoin is different than with 1 XRP, and very different than 0.01 ETH, ie.

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Your discussions remind me about one fact in my nation:

• Schools charge fee for infrastructure maintenance. Personally, I think it sucks and they can publicly charge all in tuition fee. Charging additional fee and call it as infrastructure maintenance fee is sucked and somewhat corrupted or faulty analogy.
• Imagine: Do I have to pay for infrastructure fee when I go to a hotel and take one room?
• I don't know whether the infrastructure fee is charge at schools in Western/ developed nations?

i reckon that minimizing the amounts held in the hot wallet at any given time is a higher priority than minimizing fees, right? after all, they can just pass the fees onto the user.

that may explain why they don't time consolidations optimally. they might do it totally on demand, on an as needed basis, same as they do with withdrawals.


+1. that's why many exchanges have been so slow to implement batching and segwit.

It's not true for all the exchanges. For instance, ftx.com doesn't charge any fee on withdrawal in most of the cases unless total withdrawal amount is bigger than the users trading volume; in that case, 0.10% fee is charged while that seems pretty good for low amount of transaction. Reference
How much trades per day take place on Binance? I have no idea; they charge fees from both buyer and seller and I think it's far bigger than the withdrawal fees as most of the traders barely withdraw their crypto from the exchanges unless they are in need.

Some exchanges charge a fee for low deposits. BitPay charges per transaction too, and when I followed my payment it was consolidated in a huge transaction with around $2000 fee.
But most large exchanges don't charge for deposits, probably because that would reduce the number of people who deposit to them. Once you have deposited, you have no choice, but it would be much more transparent to charge a larger fee per deposit than per withdrawal. After all, consolidating inputs is more expensive than adding more outputs.

Doge barely has fees, so this is 98% profit for the exchange. I've seen withdrawal fees for XLM as low as 0.0001 (or even more zeros?), I don't get why they only want to make a profit on certain fees.

He said it also, it's from when you want to hop from one exchange to another with the minimal cost, it doesn't work to get those  BTC in your wallet, but if you want to liquidate some shitcoin and your favorite exchange do get fiat from isn't supporting it, doge and other second-tier coins are a way to save a few dollars. Just looking at the fees, the withdrawal fee is the same 0.0005 for BTC but 0.005 for ETH, 3 times cheaper, for Doge is just 50, that's 0.50$, you've saved 15$, might not be much for some but for others every $ matter.

Anyhow, the way things are going exchanges should start looking at those fees and just them accordingly pretty soon. 5-10 $ is one thing but if the price of one BTC will hit 100 000, you can't charge a guy 50$ just because of that, it will become prohibitive for anyone dealing with small sums.


They also over-pay like morons, when you see the mempool at 1-5sat/b and suddenly there is a yellow line at 100sat/b that's Binance making other wallets estimators go nuts because of that.
January the first, mempool empty but here they come with a splash, and that block had 1/3 of it made from 1-2 sat/b transactions.

Exchanges do both. I understood the point OP was trying to make. If you look at the calculations tranthidung posted, (assuming they are correct), they overpaid the mining fee by 100% to make sure the transaction confirms as soon as possible. That's because many users start worrying if they don't see their coins (especially bitcoins) confirmed quickly.

Once again, I get the point that they are pocketing most of what they charge users for the withdrawals.

They just over-charge the user, they do not over-pay fees in the transactions. That's the point OP was trying to make. In other words the user pays a lot of bitcoin while the exchange only pays a very small portion of it in the actual transaction they send.
Besides implementing a simply dynamic fee estimator that sets the withdrawal fee also is not that hard.

Well, depends on how you look at it. For the amount of withdrawal fees paid, they should have a quick confirmation but it's true that not all of the fees paid are used to pay for the actual transaction fees. I guess it would be justifiable if a larger portion of their withdrawal fees are used for the actual transaction fee which is usually not the case.

Would be great if they could have variable fees for the user to choose and perhaps give them a notice about how the confirmation time would be longer etc etc. I'm sure most would choose to have a lower fees than have to overpay for it. I'm not sure how difficult it is to really implement that though.

I don't think you will be able to save that much on withdrawal fees this way. You will save money if you convert your bitcoin to doge or tron and withdraw those coins for a few cents for example. But if your goal is to convert that in the end to bitcoin, you have just postponed the withdrawal fees that you will now have to pay on exchange #2.

They over-charge on miner fees because if they didn't, they would be overwhelmed with questions like where is my bitcoin? My bitcoin hasn't arrived in over an hour, etc.

That's a fair point. Gemini can afford to allow (10) free withdrawal per month though, but I guess it's not really an apples to apples comparison.

Binance consolidates their transaction in large denominations and users typically send the funds in large transactions. Take this transaction[1] for example, it has a transaction fee that boils down to roughly 0.00012BTC per deposit. Note that the network was fairly congested at that time. This means that, for the exchange to start losing money, each user has to do up to 3 deposits per withdrawal for it to be worthwhile.

I can't wrap my head around how most exchanges won't try to optimize their consolidation habits to reduce the transaction fees. For starters, allowing Segwit addresses would have resulted in a huge fees savings. Choosing a more optimal time for consolidation would result in better fees rate as well. Perhaps there might be some rationale related to their operations for this so I would hold my pitchforks for the consolidation part.

There really isn't a fair way to estimate the profit/loss an exchange makes when users deposit/withdraw. I think the point still stands, there are ways to lower the fees but the exchanges wouldn't really care because the fees are typically being passed down to their consumers.

[1] https://blockchair.com/bitcoin/transaction/3fc2176aba09fdaaebabfb39685ce1521dcda84bdb58ac8621decebf7e1105a5

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Well, I bet some people are just sat stacking as well. Not making any crypto deposits and only making crypto withdrawals. The only way this can be fair is if they start lowering the withdrawal fees and start charging for deposits which IIRC was a practice for some exchanges previously.

i'm not just talking about that transaction. what about their consolidation transactions---the ones which allow 74 withdrawal outputs to be sent from a single input? exchanges process lots of small deposits, more so than withdrawals, because customer deposits are free and withdrawals are not. at the very least, you should be including the fees paid in these transactions in your accounting of their "profit". arguably, the cost of their entire wallet infrastructure should be included as well.

Well, it is not surprising that exchanges are interested in getting more profit, they are constantly looking for new efficient ways to increase it. Exchanges don't work without traders, thus the primary goal of every exchange is to attract as many traders as possible. An increase in the number of traders leads to an increase in trading volumes, which allows exchanges to get more profits from commissions and market-making. But that's not all. Another way to make revenue streams more profitable is not through the increase in the number of traders but through increasing the size of deposits that these traders make. Exchanges somehow need to incentivize traders to deposit more money, to make trades with bigger amounts. Withdrawal fees is one of the most common ways of incentivizing (or disincentivizing). Given that these fees are usually fixed (of flat rate), the more you deposit and withdraw, the less percentage you lose. Knowing that you can't withdraw your money freely, you wouldn't try to deposit 0.0005 BTC or 0.001 BTC.

figmentofmyass was saying that exchanges also pay fees when they consolidate funds, so those fees are a part of withdrawal fee too. But as you have shown in your calculations, exchanges take more than 10 times of the fees that they pay, so that's a lot of consolidations that could have been made.

Also, during times of congestion they charge even higher fees, so it's not like their consolidations help them fully prepare for them.

They used over-killing fee. Around the time of that transaction (5:26 AM UTC), fee at 50 sat/(v)byte (even 10 - 15 mins before that time-point) can help to get confirmation next 1 block but they used 100 sat/(v)byte.

It is not a new discovery that exchanges usually use over-killing fees for their transactions. They need to prepare for sudden rise in mempool AND don't want to spend sources to do Replace-by-Fee. They want something absolutely is done with 1 attempt.

The over-killing transaction fee (100 sat/vbyte) can be accepted but earn 93.1% of withdrawal fees (in BTC) is what I brought here. It is not an attack on Binance as it exists with all exchanges.

is it actually revenue, or just recouped costs? we need a deeper analysis. i once dug into some of binance's wallet consolidations during high congestion periods and as i recall, they pay very significant fees to ensure on-demand withdrawals. even when network fees are cheap, exchanges may feel the need to hedge against future high fee periods too.

exchanges that charge near the market average---kraken, binance, bitfinex, etc---i'm not so resentful of that. yobit is a different story.

These days still cexes are better than 'non-custodial' exchanges like uniswap, you pay like $30 to swap some token to eth and vice versa. Both needs change for the better.

I think it is because they are well aware of the fact that almost anyone who goes to Yobit to trade is because they have no other choice otherwise all of them are aware of how bad and scammy this exchange is. If there were at least another absolutely-no-KYC exchange (apart from DEX which has its own issues) out there then there was no chance anyone would have gone to Yobit at all.

The $$ value of fees is still different between coins, and less valuable coins generally come with smaller fees, so if your goal is to move coins from exchange to exchange, it can be smart to do so through some altcoin and immediately sell that, but you should calculate all the costs of this process - trading fee, withdrawal fee, market price difference.


True, but I personally think it's a bit dishonest from exchanges to take revenue in form of withdrawal fees. 99.9% of their revenue comes from trading fees, and charging hidden fees on withdrawal just creates frustration and confusion among their users.

Of course there are alternatives like p2p or DEX, but people are still more inclined to centralized solutions, and they very easily adjust their fees so that there is not too much difference between A, B, C exchange - the choice is very clear, accept the terms or don’t.

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Very unfair distribution if viewed from that perspective, yet miners make their main income from blocks rewards, while crypto exchanges do not have that option. Also, fees for blockchain transactions are something that depends on various factors and miners have no influence on them, while exchanges can change their fee at any time - today is 50 000 satoshi, tomorrow it can be 55 000 satoshi or 100 000 satoshi. Nothing different from banks, account management fees, mobile banking fees, SMS notifications fees and more - but with the remark that opening an account is completely free

Initially, when I wrote OP, I forgot about change address but minutes later, I thought of it but still not sure there is or is not change address in that batch. The possibility of having change address is big but it is not 100% probability. It is reason I hesitate to edit OP. Anyway, thanks for the correction.

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I left a note that for other exchanges or other periods, do your own research and calculations.

They are different things but somewhat can be connected IF exchanges apply dynamic withdrawal fee. In reality, most of exchanges are using Static (fix) withdrawal fee that does not correlate to transaction fee on the network.

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There are many factors behind and as I wrote in OP, it is not an attack on exchanges. Instead, it is a reminder to people to beware of what they get from exchanges (chances to trade, etc.) and what they get loss from exchanges (withdrawal fees, ie.)

I know exchanges need to have teams behind to keep their services operating safely. They need to have salary budgets for their staffs, and so on. If people decide to use exchanges, they automatically accept those (dis)advantages.

Exchanges get their incomes from many sources: maker/ taker fees, listing fees, withdrawal fees, and partnerships with crypto projects, or manipulate their order books and make liquidations, etc.

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Higher or lower,  community can make voices but must accept ToS to use exchanges.  

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Look at it in % of BTC is better as the figure in USD will be changed with bitcoin price. The percent is not small -- 93.1% go to exchange, the rest (6.9% is for transaction fee to miners)

Every service has its price, and crypto exchanges are certainly not charities. Definitely, their fees could be cheaper, but fees are there for companies to make money and maybe for clients to keep as many coins on the exchange as possible so that their liquidity would be as high as possible.


Lack of intelligence to change that since the end of 2017, or just plain greed to skin anyone who tries to do a BTC withdrawal? Almost $40 for a fee is pure robbery, especially since they have been doing it for years...

Oversimplistic way of looking at things.
Is the pizza guy charging you the delivery at the gas mileage or he has a fixed fee?

Those exchanges need to make money, what to you might look like a simple payment has people verifying, monitoring, and giving the go-ahead for it, it has support, it has an infrastructure to pay for all of it. Yeah, they make money from withdrawals fee, it's normal, I would be more amazed if somebody would do it for free.
Besides, you're not counting another thing, they also must batch transactions they receive, depositing on them is free but they have to move that money in order to use them, that's another fee they are paying.

But talking about Binance, the fees are one thing, using them as a wallet paying directly for services, especially since their "address whitelist" features have been introduced and they are also scanning to where you send your funds, sooner or later you will use something they don't like, as it happened to the wasabi wallets.


Can you buy coins without any extra fees directly from electrum or bitcoin core?

Since BTC hit ATH 2017, I think with 0.0005 are too expense, Since then, when I have put BTC into the exchange, I prefer to keep it and do trading activities there until I withdraw it to Fiat. Because, make a trading and converted to Fiat will more cheaper than withdrawing in BTC. Of course, the worst is, I don't have BTC anymore, except we are buying a BTC with Fiat personally to the trusted person. I decide to move to use electrum, sending ammount are more cheaper even we are want to make a P2P trade.

Most of the exchanges have very less trading fee like 0.1% which is not going to be enough to bring the revenue they wanted so they are also making money from the withdrawals as well so they are telling their customers to not to withdraw their funds too often if they want to save the expenses.As a crypto trader there no other way than accepting this and the fees are pretty less compared to the hidden fees collected by banks.

This also can explains that why someone should use a wallet for storing crypto not any exchanges.

Exactly. I've seen this misconception so many times, I've seen so many newbies claiming that Bitcoin tx fees are too high because they were misled that withdrawal fees are tx fees ...
People don't realize how bad this is for Bitcoin and its adoption from the average Joe.
And somehow this is not said often enough and loud enough...

Okay, so the essence of this thread is that don't use exchanges for storing, sending and receiving bitcoins because along with non-custody, you have to pay higher fees for transactions.

But I have an argument in favor of Exchanges: we as the users shouldn't assume 'withdrawal fees' equivalent to 'network fees'. What if you ask me to take your car to the service station, get it serviced and bring it back to you? Won't I ask you more money in addition to the car service fee for my time and efforts? Same goes for exchanges. They charge withdrawal fees in addition to the network fees for creating transaction and broadcasting it on your behalf.

If you like it then it's good-good, if not then better start taking your car to service station yourself (use non-custodial wallets).

Exchanges make money from withdrawal fee, their withdrawal is often and always higher than normal withdrawal fee, withdrawal fee are supposed to only be charged by miners but for exchanges maintainance and continues operation and services, they deduct their own fee as an extra charges, which can be too high.

Your fee calculation is very correct and contain clearer information about how exchanges are making profit from customers withdrawal fee but it can not be accurate because exchanges withdrawal fee are not the same, they are different from exchanges to exchanges. But, you use a transaction batch payment as an example which makes you to have a correct calculation. Like on binance, the withdrawal fee is 0.0005 btc just like in your example, while on HitBTC the withdrawal fee is 0.0015 btc.

The main reason for this topic is about how exchanges charges higher fee from customers, unlike noncustodial wallets that charges only miners fee, and this is absolutely correct, but it is also worth mentioning that exchanges also profit from trading fee.

Having a noncustodial wallet has been the best, not even only about transaction fee, but also about bitcoin and other crypto security and safety, exchanges are not safe and secure by design, they are often hacked. If not trading, Bitcoin and others should be stored on noncustodial wallet. Another reason is that any storage we do not have the private key, we do not have full control, the exchanges have the full control which can be used to override the customers account. Not your key not your coin.

To be fair, exchanges aren't exactly known for saving users money on fees. It's not an entirely new concept either; I'm sure most people who handle crypto have dealt with stupid transaction fees from banks at some point in their lives, so they probably already know it comes with the territory even without being explicitly told so.

But hey, having exact figures on how much they actually profit from it may actually push a few users who only use exchanges to look into non-custodian options, so I'm definitely all for it. $1k for a single batch is pretty disgusting.

Withdrawal fees have always been a good revenue for exchanges, it became a more viable one when they started batching transactions. 50k satoshi is good compared to some other exchange that charge a lot more, specially the shitty ones with fewer customers. For example the shittiest of all, Yobit charges 120k satoshi!

At least one output is a change address so at most 73 customers

It is not a new story, a new theory.

Exchanges always do batch payments for their customers' withdrawal requests. They do only one batch payment in a single transaction for 10, 20, 50 withdrawals from 10, 20, 50 customers. For each customer, they charge a fix amount of withdrawal fee.

Hey. Let's see how they earn profits from the type of fee.
This transaction has:

• 1 input (from the exchange)
• 74 outputs (to 74 customers)
• Each withdrawal will be charged with 0.0005 BTC as fee.
• Net withdrawal fee: 74 x 0.005 = 0.037 BTC
• The fee the exchange paid to miner is: 0.002554 BTC
• Profit = 0.037 - 0.002554 =.034446 BTC
• Profit in USD: 0.034446 *31000 = $1067.826

You can check this fact whenever you make your withdrawal on any exchange.

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A simple message

• Choose a non-custodial wallet and use it to store your bitcoin and to broadcast your bitcoin transactions if you are not trading on exchanges.