Old story. Exchanges get profits from users' withdrawal fees.

[tranthidung]

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.

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.

[1715662429]

1715662429

[1715662429]

1715662429

[pooya87]

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!

74 outputs (to 74 customers)

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

[jseverson]

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.

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.

[Charles-Tim]

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.

[webtricks]

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).

[NeuroticFish]

we as the users shouldn't assume 'withdrawal fees' equivalent to 'network fees'.

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...

[Findingnemo]

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.

[masulum]

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.

[stompix]

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.

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.

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

[Lucius]

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.

For example the shittiest of all, Yobit charges 120k satoshi!

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...

[tranthidung]

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

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.

but it can not be accurate because exchanges withdrawal fee are not the same, they are different from exchanges to exchanges.

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

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.

It is not, at least IMO. You are overestimate the non-custodial wallet and security for your funds. Think of it this way:

• Exchanges (big ones) have big security teams and they have multiple layers for their systems. But they are main targets of hackers so consequently the risks of attacks, hacks on exchanges are high or higher.
• Non-custodial wallets mean you have to fully control and secure your devices, your wallets. I am sure not all people are using non-custodial wallets keep their devices clean. Or they don't do multiply layers of protections. Or they regularly do stupid things.

To sum up, if you are doing stupid things on your devices, non-custodial wallet is worse than exchange wallets. Sometimes, exchanges can automatically protect your accounts from compromises. If you have healthy web-surfing, and don't often trade on exchanges, let's go with non-custodial wallets.

we as the users shouldn't assume 'withdrawal fees' equivalent to 'network fees'.

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.

Oversimplistic way of looking at things.

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.

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.

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.

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

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)

[Lucius]

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

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.

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)

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

[hatshepsut93]

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.

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.

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.

[pooya87]

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...

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.

[libert19]

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.

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.

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.

[figmentofmyass]

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.

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.

[tranthidung]

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.

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.

[hatshepsut93]

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.

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.

[witcher_sense]

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]

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.

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.