Examples of high fees for cryptocurrency transactions are often cited as “evidence” that cryptocurrency is too inefficient to be useful. For example, in a new report, the Bank for International Settlements (BIS) wrote, “[Cryptocurrency] suffers from the inherent limitations of permissionless blockchains, which lead inevitably to the system’s fragmentation, accompanied by congestion and high fees.” But are high fees really a defining feature of cryptocurrencies?

Just like dealing with different banks or payment services, each cryptocurrency can have its own unique fees depending on what you want to do and what features are available. For instance, the fees paid for spending bitcoins can depend both on the size of the transaction and the speed at which one wishes to settle the transaction. In addition, if your bitcoins are held on an exchange (e.g., Coinbase, Kraken, etc.) instead of in a self-hosted wallet, then the exchange may charge a fee for facilitating the payment.

But the options don’t end there. Bitcoin transactions can also occur off the blockchain and return to settle later via the Lightning Network. In doing so, transactions can actually be made both faster and cheaper than they normally might be. And considering the Lightning Network was conceived just 7 years ago, it’s likely even greater improvements are still on the horizon. After all, cryptocurrencies themselves are only 13 years old.

So the fees paid really depend on a variety of factors. To help illustrate these factors, figure 1 includes some examples of bitcoin transactions from the last week that only cost a few cents in fees.

Now that is not to say that critics are completely wrong about high fees. It is indeed possible to experience high fees while exchanging cryptocurrency. Just as driving during rush hour will take longer than driving at mid-day, fees are often higher during peak transaction hours. Combine that with a third-party exchange that has a processing fee, a faster-requested settlement time, and large transaction sizes, and the fees can indeed become quite high (See Figure 2).

But to that end, it’s important to note that one can perform the same exercise with the dollar and traditional banking system. It can be inexpensive to send dollars, but there are many factors that can quickly complicate the process and raise the fees associated with doing so. For example, it can take mere moments to initiate a transaction with your bank, but it can take days for that transaction to actually settle (think of the times you’ve seen a “pending transaction” in your account). If you need to send money from your bank in D.C. to London and have it settled as soon as possible, the quickest—albeit, most expensive—route may very well be by plane. But with that said, waiting is not a panacea for reducing fees either. Mailing a check by priority mail will take longer than a wire transfer, but it will also be more expensive. Figure 3 offers a few different examples of how the fees with dollar transactions can vary.

The dollar transaction system isn’t just important to bring up for comparison’s sake. It’s also important because we need to be clear about whether we are describing when people “cash out” their cryptocurrency holdings versus when people use their cryptocurrency as money without exchanging for a national currency (e.g., the dollar). And in both cases, it needs to be acknowledged just how much government regulations are responsible for the fees experienced.

Returning to the BIS report, it’s also worth considering the evidence used to make the claim regarding high fees. The claim itself featured a footnote pointing to the work of the BIS in 2018 as well as BIS working papers by Raphael Auer in 2019 and 2021. However, the only empirical evidence offered in those papers was in the form of data on the average transaction fee paid across all daily transactions (Figure 4). And due to the wide variety of factors that influence the fees, averages are far too broad of a brush to describe the landscape.

With all of that said, if there is to be a major takeaway, it should be that critics citing high fees should start explaining exactly what they are talking about. In fact, proponents should do much the same. It might be easier to make sweeping claims, but sweeping claims about the so-called shortcomings of cryptocurrency should not be used as evidence for developing policies—especially those policies that make it even more difficult to use cryptocurrency.