Whenever you execute transactions on the Ethereum blockchain, you have to pay “gas”. During busy times, gas fees can be very expensive. In some cases, they cost more than the actual crypto amount you want to send. The problem is Ethereum, and the community well aware. That is why the switch to proof-of-stake technology, and thus lower fees, is now to take place shortly. But one thing at a time.
What exactly are gas fees?
Gas fees are what we have to pay even in the U.S. or England to execute transactions on the blockchain. These are the transaction fees of the Ethereum blockchain. Other blockchains also know such “fees”, for example Bitcoin. Primarily, they are used to pay the miners for their work. Their proof-of-work process and mining hardware ultimately verify the transactions and secure the network. In the case of Bitcoin, the miners also receive the newly mined BTC as a reward. This is how fresh coins get into circulation in the first place.
“Gas” is not a cryptocurrency by itself, but only a small amount of Ether (ETH). So whenever you make a transaction on the Ethereum blockchain, you need to have a certain amount of ETH ready to pay the fees. This is also true when you use another Ethereum-based cryptocurrency. Many cryptocurrencies and blockchain projects use Ethereum’s token standard. Among them, many DEX tokens or blockchain games (see table).
Token standard of Ethereum – expensive gas fees
The table shows cryptocurrencies and blockchain projects that use Ethereum’s token standard – and therefore have expensive gas fees.
How is the gas price calculated?
The current gas price is not a fixed amount. Instead, the amount charged depends on several factors. These include:
- The current price of Ethereum
- The number of transactions
- Complexity of the transaction
Fees are calculated in GWEI. This is the smallest possible unit of Ethereum. One GWEI is equal to 0.000000001 ETH. The minimum for a transaction is 21,000 GWEI. If the transaction is significantly more complex (i.e. requires more computing power), then this value also increases. This sum is then multiplied by the average cost, which results in the gas price. The gas formula is therefore: Gas fee = guest cost of transaction x average gas price x current Ethereum price.
How to set fees yourself
Don’t worry, you don’t have to calculate your fees yourself. Wallets and the network will take care of that on their own. As soon as you want to make a transaction, the price will be displayed immediately. Do you want to save on gas fees? Then you can also set the fees yourself and lower the basic setting, for example with Meta Mask. Or you can even increase the fee, i.e. consciously pay more for a transaction. This makes the miners process your request sooner. This is an optional feature. If the network activity is very high right now and you only pay the minimum, then the confirmation might take longer. Especially when it comes to fast trades like DeFi, you rely on promptly processed token transfers.
Why are gas fees increasing so much?
Similar to Bitcoin fees, Gas fees are subject to fluctuations. The more active users on the network, the more transaction requests that go to the miners, the more expensive the fee. So during busy times, it becomes especially expensive to get your transactions verified. The “block gas limit” also plays a role in this.
A blockchain is a string of multiple blocks. A block cannot be unlimited in size. Instead, there is a maximum block size. In Bitcoin, this is specified in bytes. With Ethereum it is different, here gas is the limiting factor. Initially, this was still 5000. That was in July 2015. Just one month later, it was raised to 21,000 gas. There were several adjustments almost every year. Since April 2021, the maximum gas count per block has been 15,000,000, which theoretically means more transactions can fit into one block.
Tips for saving gas fees
Whether blockchain gaming or DeFi trading, high fees can spoil the fun of cryptocurrencies. If the transaction costs more than the value of the transaction itself, then it’s often not worth it. That said, there are a few ways to get around high fees. Are you a user in the USA or England? We give valuable and useful tips – follow these tips to save money:
What affects the price of gas in cryptos?
There have been times in the past when the gas price has increased tremendously. Basically, these times with a lot of traffic are due to an increase in network activity. More participants on the network, more transactions, and more importantly, more complex transactions mean higher fees.
- DeFi: Decentralized Finance is an important part of the Ethereum ecosystem. Many DeFi platforms are built on Ethereum. Its blockchain constantly handles various token transfers. This includes complex operations such as lending and yield farming. The DeFi boom in 2020 caused the Ethereum price to rise, but users faced increased fees at the same time. At times, traders had to pay over $200 for a transaction.
- CryptoKitties and blockchain gaming: NFTs also have the potential to create congestion on the transaction highway. In 2017, a veritable collecting frenzy emerged around CryptoKitties. The NFT cats went for hundreds of thousands of US dollars over the virtual counter, leading to increased network traffic.
- Initial Coin Offerings: 2017 was also the year of the ICOs, the Initial Coin Offerings. Ethereum was the platform of choice to create new cryptocurrencies or to finance own projects with the help of tokens. Among them were also a lot of trash and scams. The trend continued until 2018. Based on the data, we can also see an increase in gas fees for this period.
FAQ – Frequently Asked Questions
With sharding, the data set of the blockchain is divided into smaller subunits. This reduces the load on the overall network. Actually, the term comes from data processing. Applied to cryptocurrencies, it means that the blockchain no longer has to hold all the data. Instead, independent data sets are created that communicate with the overall chain via specific channels.
Gas fees are incurred for transactions on the Ethereum blockchain. This includes sending cryptocurrencies (not only Ether, but also other Ethereum-based tokens) and the smart contracts. Gas is the fuel for the blockchain.
The upgrade to Ethereum 2.0 is scheduled for 2022. Until then, the developers will still have to test a lot. They have already been working on the hard fork for three years. The testnet has already been online since December 2020. However, there is no release date for Ethereum 2.0 yet.