Ethereum: Spending Low-Fee Transactions by Making Higher-Fee Transactions
In the world of cryptocurrency trading, there is no such thing as “free” when it comes to transaction processing. As a trader, you need to think strategically about how to optimize your transactions while minimizing fees. In this article, we’ll explore the concept of spending money on low-fee transactions and why making higher-fee transactions can be more beneficial in the long run.
The Problem with Low-Fee Transactions
When it comes to Ethereum (ETH), the native cryptocurrency of the Ethereum network, spending funds from low-fee transactions is often not as efficient as you might think. In fact, for many users, low-fee transactions can mean taking a high fee. This is because most nodes on the Ethereum network have a high threshold for processing transactions without confirmation.
Why track transactions with higher fees?
So how can you be more efficient with your spending with cryptocurrencies? The answer lies in the concept of “performance spending” and the fees associated with it. Here’s an example:
Let’s say you want to spend some ETH on transaction A, for which we don’t charge fees. This is relatively straightforward, since the transaction has already been confirmed by multiple nodes on the Ethereum network.
However, if you then broadcast another transaction B that uses one of your existing transactions (e.g. 10 ETH) and has a higher fee, your spend will be reduced. In this case:
- You will still have to wait for at least two transactions to be confirmed before your spend is updated in the Ethereum ledger.
- The network will first verify transaction B as new, which can take some time. This means that you will lose a larger portion of your available ETH in the meantime.
Benefits of Observing Higher Fee Transactions
By doing this, you are essentially “spending” your output twice:
- You spend one output (B) and you can use it immediately.
- The network first verifies B as a new transaction, which takes some time.
This strategy allows you to use your spend more efficiently by allocating your available ETH in a way that minimizes downtime and reduces the overall fee burden on the network.
Key Takeaways
- Spend is a significant factor when trading cryptocurrencies.
- The fees associated with each transaction can be significant, especially for high-fee transactions like B.
- Using this approach, you can use your spend more efficiently by “spending” it twice.
While this strategy may seem counterintuitive at first glance, it is important to understand the basic mechanics of how the Ethereum network works. By optimizing your trading strategy by carefully considering your expenses and fees, you can minimize downtime and maximize your return on investment.
