What on Earth Are Gas Fees?
Gas fees in cryptocurrency are additional charges required to complete blockchain transactions. It is payment made to blockchain miners or validators in exchange for their involvement in processing transactions. Gas fees serve as incentives to keep these transaction channels active, as well as to keep the decentralized system running on a larger scale.
How do Gas Fees Work?
Gas Fees have to do with completing (validating) transactions through channels and processes on the blockchain. This process typically involves there entities:
- The initiator of the transaction: This is the person that wants to perform an action on the blockchain.
- The channels of validation (miners or validators): These are the set of people that add transactions to the block to be completed in exchange for compensation.
- The block information (block size and block time): Block size is the total number of transactions that a single block can contain and block time is the number of times required to process all transactions within a singular block.
In carrying out crypto transactions, the initiators pay an added charge to the channels to have their transactions added to the block to be processed and completed. This extra charge comprises three components:
- Base fee: a mandatory minimum amount for any transaction on the blockchain.
- Gas limit: an adjustable amount the user is prepared to spend for transaction processing.
- Tip: A user pays this extra amount to encourage miners to process their transactions before others on the block.
The system works as a result of the demand and supply of transactions plus the input of validators or miners. An increase in the demand for transactions to be completed can drive up gas fees because miners will prioritize transactions from people who offer more gas fees.
Alternatively, fewer transactions mean that validates have more time to add transactions to blocks. Having to validate fewer transactions means that all transactions can be accepted for cheaper gas rates.
Factors That Influence Gas Fees
Gas fees across blockchains can be very inconsistent, and under certain circumstances, can spike to expensive and unfavorable heights which can leave users anxious and have them wondering why the gas fees are so high. This scenario is especially true with the Ethereum blockchain, where users have been suffering the brunt for years. Well, several factors could result in high gas fees, including:
The cryptocurrency market has developed far beyond just Bitcoin; many other coins, blockchains, and solutions have since emerged. This expansion of the scope of the market has resulted in an unprecedented surge in blockchain users, which in turn has impacted gas fees due to the increase in the demand for transactions to be completed to complete various blockchain-related processes.
Amid the ever-fast-paced, robust crypto market with evergreen activity, there are certain times when there is a period of a high level of activity on the blockchain. Activity-packed periods such as these can result in successful or delayed transactions and excessive fees.
The massive influx of transaction requests from users who want to open a trade or perform an action such as mint NFTs during the public sales of popular NFT projects, public sale of newly listed coins on exchanges, or launch of other major crypto projects can congest the blockchain and lead to inflated gas fees.
The Emergence of Web3 Applications
Speaking about NFTs, the broadening of the scope of the blockchain beyond just the powerhouse of Bitcoin, which was popularised by the Ethereum network, brought about the introduction of many other fresh use cases that led to people conducting more transactions and requiring more block spaces.
Historical events like the formulation of crypto exchanges, the creation of smart contracts, the advent of dApps, crypto adoption by countries, the DeFi Summer of 2020, the NFT boom of 2021, and the advancement of the Metaverse have all contributed to the onboarding of users that require more completed transactions.
Blockchains With The Lowest Gas Fees
Cardano takes the lead in valuable blockchains with cheaper fees, with a current average of $0.1 per transaction fee. The network is a fast, friendly, and scalable alternative to Ethereum, with a rapid development that has attracted more users and set it among the top blockchains by market cap. Smart contracts have also been introduced to the Cardano blockchain, allowing its users to develop various dApps and DeFi protocols on the network.
Polygon offers one of the most affordable gas fees in the crypto market. It costs an average of $1 to complete a transaction on the blockchain. Polygon has a robust network of over 37,000 dApps, multiple crypto and NFT projects, as well as protocols. The network is quite popular for its scalability solutions to the Ethereum blockchain and its interoperability with Ethereum virtual machine (EVM), which allows Polygon users to enjoy Ethereum-native services with the benefit of low gas rates while on the network.
Binance Smart Chain
The Blockchain of the largest cryptocurrency exchange by daily trading volume, Binance exchange, is also known for its cheap costs. The average cost per transaction under the BNB Chain is just $2, making it one of the cheapest networks to trade on. In addition to competitive gas fees, the BNB Chain is also a robust network that hosts various web3 applications and utilities that users can explore.
Tips on How to Avoid High Crypto Gas Fees
Low-activity periods: If the transactions you wish to perform are not urgent, you can consider completing them during idle blockchain hours or periods when the blockchain has less traffic. You should also plan your transactions around periods when major crypto projects or communities are not having any big launches or activities.
Reduce gwei: You may reduce gwei for transactions that do not need to be completed right away if you do more Ethereum transactions.
Gas monitors: You can make use of apps like DeFi Saver; a DeFi management platform that allows you to simulate your transaction and display it in real-time before completing it. This feature will give you a better idea of how much the intended transaction will cost.
Gas rebates and discounts: Some DApps offer discounts and rebates when carrying out transactions on their platforms. Balancer dApp offers its users up to 90% gas rebates on transactions, which are returned as $BAL tokens that can be exchanged.
You can also make use of the Chi Gastoken that refunds gas when storage space is freed from the EVM. Burning the token alongside the main action to be carried out can reduce the total amount of gas spent to complete the transaction.
Layer 2 solutions: You may also make use of Layer 2 protocols like Polygon and Arbitrum, which let users scale up transactions by using less computing power.
Alternative blockchains: Lastly, you can use other blockchains or cryptocurrencies with less expensive gas fees.
As the concept develops, there are ongoing discussions and efforts aimed at a common goal: the reduction of gas fees. Some developers are creating new blockchains to address this issue, while others are upgrading their networks to tackle the gas problem as well as other issues. The Merge update shifted Ethereum’s consensus mechanism to the PoS model, and while this did not reduce the high gas, more promising updates are on the way that may address it.