Assuming you fully understand the Ethereum network, now it’s time to learn about Ethereum gas fees. Blockchain network validators receive a gas fee for their services to the blockchain as part of each transaction.
Let’s discuss the basics of what gas is before going into detail on how gas fees are calculated.
What is a Gas Fee?
A gas fee is the amount of ether required by the network for a user to use its services and interact with the network. The fees are what Ethereum miners are gifted with for their hard work of verifying transactions and securing the network.
Gas fees are the user’s least favorite aspect of the Ethereum network. Nevertheless, this is what gives miners an incentive to continue and keep verifying transactions.
Why are Gas Fees Hated on?
Almost everything in today’s world, whether a service or a product, requires money in return. Individuals using the Ethereum network pay for things daily, so why has this gas fee become such an issue? When the Ethereum network is congested, fees can climb higher. Gas fees range from less than 0.0001 USD to over 100 USD. The more activity on the network, the higher the transaction fee.
How are Ethereum Gas Fees Calculated?
The only way to fully understand why gas fees can get high is to understand how it is calculated. Fees on the Ethereum network usually are under the price of 1 Ethereum. For this reason, the network has developed a metric system of units known as “wei.” One Ethereum is worth one quintillion wei.
For example, if you check an Ethereum gas tracker in which the gas price is 100 gwei, you need to pay a fee of 0.0000001 ETH for a given transaction.
Since Ethereum’s London upgrade introduced revised gas fee structures, the total fee is now calculated as follows:
Total Fee = Gas unit (limits) * Base fee + tip
Gas Units (limits)
Gas Units are the most you’re prepared to pay for gas in a transaction. The Gas Units can be adjusted. However, it must be done carefully because different transactions within the Ethereum blockchain require different amounts of gas to be completed.
Base Fee
A base fee is a minimum gas required to add a transaction on the Ethereum blockchain. No matter what kind of transaction it is, the demand for it to be included determines the amount of gas needed for a base fee. A base fee is also often adjusted due to the number of users on the Ethereum blockchain network.
Tip
Tip, also known as a priority fee, is an additional fee that helps speed up your transaction process. It is referred to as a tip as an incentive for Ethereum miners to confirm your transaction before any other. A miner is rewarded with a priority fee when they verify a transaction that includes one. They usually begin with a transaction with the most significant tips attached to maximize their profits.
It’s important to remember that if your gas unit limit is set below the gas needed to conduct a transaction, the transaction will be canceled, but you won’t be refunded the gas fee. This is so that the miner, who put in the necessary effort to complete your transaction, will be compensated even if the transaction did not go through.
Why are Gas Fees so Expensive?
The first and most realistic reason for the high Ethereum gas fees is that Ethereum costs more. Keep in mind that gas prices are presented in gwei, an alternative way to represent a sum of ETH. The flourishing decentralized finance (DeFi) and NFT industries, attracting new users to Ethereum’s ecosystem, are the most significant factors of the growing demand.
The Ethereum blockchain consists of more than 3,000 dapps to, have their transactions included next to other Ethereum network users. To give you a feel of the traffic on the Ethereum network. Dapps comprises approximately 100,000 daily users on the network, which equals a total of 250,000 transactions daily.
In addition to increasing base fees, the widespread use of Ethereum has also increased the volatility of the gas for base fees. The Ethereum EIP 1559 upgrade was an attempt to make gas fees more consistent by determining base fees from the previous transaction.
While the full effects of EIP 1559 are under discussion, base fees continue to drive up the overall cost of gas fees because of the growing demand for Ethereum.
How to save on gas?
As gas fees are mandatory, there is no way to avoid them; however, there are some ways to lower the burden.
There are ways to reduce the total fee by lowering the base fee and tip. One way to do so is by making your transaction when there is less activity on the blockchain. This is because base fees, in a sense, are a measure of demand when using Ethereum. Gas prices increase when more effort is required to engage with the Ethereum network. Therefore, the less activity on the network, the lower the fee. Oftentimes weekends are a good time to check-in.
Lowering your tip can also lower your overall gas fee cost. Remember that we can pay miners an extra “tip” or “priority fee” in exchange for a quicker transaction time. Reducing your tip can be another way to save gas money if you’re not pressured on time.
Another method to reduce your gas fee is by setting a maximum gas fee limit on your transaction. The moment the transaction goes through, the network will refund the remainder of the fee that was not included in your total gas fee.
The final tip we have to help you save on gas is with the “layer 2 scaling solution.” Scaling tools are extensions to the Ethereum network that aim to boost transaction processing speed and transaction volume per second. Some examples are Arbritum, dYd, and Loopring.
Scaling solutions are off-chain, which means they are not active on the Ethereum blockchain. Layer 2 scaling techniques come in various forms, but they all function similarly. They are executed off the chain and are then confirmed by the Ethereum network and recorded on the chain.
Closing Thoughts
Ethereum gas fees work as an essential part of the network. It gives miners a reason to continue doing their work and verifying transactions.
The volume of network traffic, the availability of validators, and the need for transaction verification all affect the fee. The rates increase as demand and traffic increase. Fees decrease when demand and traffic are lower.
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