It’s all about the fees

Network fees are rising too

Layer 2 solutions to the rescue

Keeping fees in check

There is a great buzz around cryptocurrencies, which is causing more and more individuals to explore this new industry with the hopes of getting involved in some way. Yet, with fees so high for making cryptocurrency purchases it is no wonder the industry as a whole is still struggling with onboarding new cryptocurrency investors and users.Fees are always a limiting factor for those looking to make purchases of any kind. In the equities markets, discount brokerage houses were designed to allow the individual retail investor to buy equities while paying nominal fees. An equities trade which had previously cost upwards of $20 now costs as little as $3, making it a viable option for even small retail investors.The reduction in exchange fees has yet to be fully adopted in cryptocurrency. Take, for instance, one of the industry’s leading cryptocurrency exchanges, Coinbase. To make a bitcoin or ethereum purchase on Coinbase can be simple and intuitive, but extremely costly. The exchange charges close to 5% in transaction fees for making a cryptocurrency purchase. Off the bat this turns a $100 bitcoin purchase into only $95-worth of bitcoin. This doesn’t even take into account withdrawal fees incurred for liquidating assets off the exchange, which can be costly as well.It’s not just exchanges where cryptocurrency fees are rising, the networks themselves are seeing rising transaction costs as well. While as a whole fees on the Bitcoin network have stayed low, they have seen a spike anytime the network displays a rise in user adoption.For instance, just before the beginning of 2018, when the cryptocurrency bull market was in full effect,were averaging upwards of $50 per transaction at one point, before coming back down to earth. Many Bitcoin enthusiasts write this period off as an anomaly, citing how transaction fees have normalized in recent months, but this spike does show the network is not yet ready for mass adoption.One way in which these fees could be minimized is through the use of layer 2 solutions, which open channels for cryptocurrency to flow back and forth off the blockchain, after which time the final transaction amount is settled on the blockchain. This will lessen the load of transactions directly on the blockchain itself, and in turn, keep transaction costs down. Layer 2 solutions such as the Lightning Network for Bitcoin and Plasma for Ethereum are already playing a role in combating this problem.The only way to get new cryptocurrency users engaged with a market they are unfamiliar with, is to keep fees to a minimum. Blockchains themselves will have to utilize layer 2 solutions, and exchanges such asandwhich are able to keep fees low, or even non-existent, will play a key role in moving the industry forward to the masses. Until that time, expect user onboarding to cryptocurrencies to remain underwhelming, and mass adoption to summarily take longer to achieve.