What are gas fees?
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Every operation Ethereum has to complete requires some amount of gas. Just like renting a hotel room, you pay to have access to the space for a night. The bigger the room, the more expensive. In ETH, gas is like the size of the room.
Each transaction uses computational resources in order to execute, and each transaction requires a fee. Gas is the unit of measurement for the amount of computational effort required to execute specific operations on the ETH network. Consider it a processing fee with a varying price. So, every single operation taking part in Ethereum, whether it’s a transaction or running an application, requires some amount of gas.
But how is the room priced? Just like during a conference, the rooms will be in high demand. You pay a higher price in order to receive access. In Ethereum, you can pay your way for priority access with Ether. Gas fees rise based on demand, and you can pay your way to the front of the line. The more the demand on the ETH network, the higher the gas price and the price fluctuates throughout the day.
A standard transaction requires 21,000 units of gas.
The gas limit refers to the maximum amount of gas you’re willing to spend on a transaction. The higher gas limit means that more computational work is needed to execute a transaction using ETH or a smart contract. If the gas price limit is too low, miners can choose to ignore such transactions. The speed of your transaction is dependent on the amount of gas you choose to pay.
On the Ethereum network, gas fees are paid using its native currency, ether (ETH). Gas prices are denoted in small fractions of ether called Gwei. 1 GWEI is the equivalent of 0.000000001 ETH.
The gas price alone doesn’t determine the entire fee users pay on a transaction. Today, 3 values determine how much users pay:
Base fee: Every block has a base fee that acts as a reserve price. It’s the minimum price of gas used for a transaction to be included. This goes up or down depending on congestion.
The tip: How much the user is willing to pay for speed. If demand is too high, users can offer a larger tip amount to try and outbid other users’ transactions. Miners are more inclined to execute transactions offering higher tips first, as this goes directly to them.
Fee cap: Users can specify the maximum price of gas they’re willing to pay to execute a transaction. This must exceed the sum of the base fee and the tip.
Whenever you do transactions on the ETH network, the base fees end up getting burnt. This reduces the supply of ETH every transaction, making it a deflationary asset, allowing it to be more accessible instead of the value being constantly raised. Each transaction takes up more space of a limited size block. Ethereum allows more transactions in a block when there’s less usage.
Why do gas fees exist?
Gas fees help keep the Ethereum network secure. By requiring a fee for every transaction executed on the network prevents bad actors from spamming the network and reduces the risk of computational wastage.
It’s always a good idea to check the price of gas before making a transaction, as it can fluctuate throughout the day. One way to reduce the total gas fee cost is to do a transaction at a time where there is less demand on the network. This is usually during weekends or late at night.
To track demand. there are different methods you can use to monitor gas prices at any time, including:
- Etherscan’s (@etherscan) gas tracker is a transaction gas price estimator
- Blocknative (@blocknative) ETH Gas Estimator is a gas estimating Chrome extension
- ETH Gas station is consumer-oriented metrics for the ETH gas market
Gas fees are a mandatory part of conducting transactions on the Ethereum network. You can’t avoid them, but you can pay attention to them and limit your cost of trading.
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