Prior to 2020, most blockchain transactions were relatively cheap. But now, with the rise of Web3 and NFTs, the price of mandatory blockchain transaction fees — also known as gas fees — serves as one of the largest barriers to entry for mainstream adoption.
For blockchains like Ethereum and Bitcoin, the price of gas fluctuates based on network congestion. That means the more people using the network, the higher the gas fee. And with Web3’s ethos centered around democratization and inclusivity, this fundamental scaling issue largely brings those core tenants into question.
While the concept of gas is fairly straightforward, under the hood it can be rather complex. That’s why we’ve put together this in-depth explainer on gas fees, how they’re calculated, and what Ethereum and other blockchains are doing to make them more affordable.
What is a gas fee?
As defined in our NFT dictionary, gas fees are the payments individuals make to complete a transaction on a blockchain. These fees are used to compensate blockchain miners for the computing power they have to use to verify blockchain transactions. They are typically paid in the blockchain’s native cryptocurrency. While the act of paying for gas is a given (you can’t perform blockchain transactions without it), the price of gas itself is highly volatile and dependent on a multitude of factors.
The two main factors for each blockchain are block time (the time required for the respective blockchain to generate new blocks) and transaction throughput (how many transactions a single block can process). Generally speaking, the faster blocks are generated and the more transactions they can hold, the less block-space competition there will be. This results in cheaper transaction fees for all network users.
Let’s compare the block time and size of Bitcoin, Ethereum, and Solana.
Bitcoin’s block time is around 10 minutes and with a maximum block size of 1 MB, each block can process anywhere from 500 to 4,000+ transactions depending on the transaction size.
Solana has a block size of .4 seconds and a throughput of 20,000 transactions resulting in extremely low gas fees.
Meanwhile, Ethereum has a block time of 13 seconds and a block size of around 70 transactions. Despite Solana’s gas fees being close to $.000025 per transaction (nearly 60,000 times less expensive than Ethereum), Ethereum is still by far and away from the most popular blockchain for NFTs, DeFi, and other Web3 activity. With this small of a block size and such high network usage, it’s easy to see why Ethereum’s gas fees have gotten out of hand.
How are Ethereum gas fees calculated?
To understand how Ethereum gas is calculated, we must first understand the concept of gwei. Gwei is a very small denomination of Ether (1 gwei = 0.000000001 ETH) that is used to measure the cost of gas. For example, a gas fee of 30 gwei would be equivalent to 0.000000030 ETH.
Since Ethereum’s London hard fork in August 2021, Ethereum gas fees follow a simple calculation:
Total Gas Fee = Gas units (limit) x (Base fee + Tip)
Let’s break this down a bit further.
A gas limit is the maximum amount of gas (or energy) that a cryptocurrency user is willing to pay when completing a transaction on the blockchain. For standard Ethereum transactions, most wallets and exchanges set the gas limit at 21,000 gwei, but give users the ability to manually edit this number whenever they please. In gas wars, where many users are competing over transaction priority in the next block, users often raise their gas limits significantly.
That said, Ethereum will only use the exact amount of gas needed to process the transaction. Any difference between your gas limit and the actual amount of gwei needed is refunded to your wallet. Meanwhile, setting your gas limit too low will likely cause your transaction to fail, resulting in wasted gas fees that you can never recoup.
Next up is the base fee. Also introduced as part of the London upgrade, each block has a base fee that is dependent on network congestion. As a deflationary mechanism to offset the issuance of new ETH, each base fee is burned, or discarded from Ethereum’s supply circulation. So to compensate miners for the fee that they would’ve once received, users are encouraged and expected to include a priority fee (tip) with each transaction. The higher the priority fee, the quicker the transaction will process. In wallets like MetaMask, users are able to adjust all three values (the gas limit, max priority fee, and max fee).
So with all that in mind, here is an example of a basic gas fee calculation. Let’s say that James wants to mint an NFT for 1 ETH.
1. The gas limit is 21,000 units, the base fee is 50 gwei, and James includes a tip of 15 gwei.
2. The gas calculation formula is: 21,000 (gas limit) x (50 (base fee) + 15 (Tip)), or 21,000 x (50 + 15). This returns a total gas fee of 1,365,000 gwei or 0.001365 ETH.
3. When James mints the NFT, 1.001365 ETH will be charged from his wallet. The wallet associated with the NFT project will receive 1 ETH, the miner will receive the tip of 0.000315 ETH, and the base fee of 0.00105 ETH will be burned.
Users can also set a maximum fee for the transaction, which gives them full control over the absolute maximum they’d like to pay with the base fee and priority fee included.
But still, while this model makes fees more predictable, it doesn’t solve the issue of congestion-based pricing. That’s why Vitalik Buterin and the Ethereum team are working diligently on a new, scalable version of Ethereum.
Making gas fees more affordable
Despite numerous delays, the Ethereum team has finally announced that its multi-phase Ethereum 2.0 upgrade will begin in August 2022. Designed to improve scalability, security, and efficiency, Ethereum 2.0 will be changing from a proof-of-work consensus to a proof-of-stake model. Not only will this significantly improve transaction throughput (Ethereum 1.0 can process around 30 transactions per second, while 2.0 promises to complete 100,000 per second), but it will also significantly reduce gas fees by decreasing the amount of computing power needed for each transaction.
In lieu of the long-awaited upgrade, users have been relying heavily on Layer 2 protocols for quicker and cheaper transactions.
What is Layer 2?
Layer 2 protocols (L2) are secondary scaling frameworks built on top of existing Layer 1 blockchains (like Bitcoin and Ethereum), designed to improve transaction throughput and reduce gas fees. The two most popular and trusted Layer 2s are sidechains and rollups.
Sidechains
A sidechain is a separate blockchain network that connects to a parent blockchain via a two-way bridge. Using smart contracts, sidechains are able to transfer tokens securely back and forth between blockchains. Despite being connected to a main blockchain (mainnet), sidechains operate under their own consensus protocols.
For Bitcoin, not only do sidechains like Rootstock (RSK) increase block time and significantly reduce gas fees, but they also add additional functionality to the blockchain. The RSK blockchain provides the network with scalable smart contract capabilities, further expanding the possible use cases of bitcoin.
Ethereum-wise users tend to rely on Polygon as a quick, cheap, and scalable alternative.
Unlike Ethereum, Polygon operates on a proof-of-stake consensus which allows for significantly quicker transactions, higher throughput, and lower gas fees. Gas is also paid in Polygon’s native token MATIC, which is substantially cheaper than ETH resulting in pennies worth of MATIC instead of hundreds of dollars worth of ETH. With this in mind, Polygon has become a chosen blockchain for DeFi and bulk-NFT trading. But even with all the upside, it’s important to note that sidechains, Polygon included, come with their own sets of issues around security and downtime.
Rollups
Rollups are scaling solutions that batch together (or roll-up) multiple blockchain transactions at once, storing the transaction data on the main blockchain (on-chain), while executing the transaction themselves on a separate chain (off-chain). By validating the transactions on-chain but relying on off-chain execution, rollups also provide increased throughput and lower gas fees. At the time of writing, there are two main types of rollups: Optimistic rollups and Zero-knowledge proofs (zk proofs). While both options come with advantages and disadvantages, each has already shown promise.
By now you should have a good understanding of gas fees and how they work. While much is still to be seen from ETH 2.0s arrival, it is certain that gas fees will never be fully eradicated. So remember, always keep extra cryptocurrency in your wallet for gas. You’re going to need it.
FAQs
A gas fee is a blockchain transaction fee, paid to network validators for their services to the blockchain.
How can we prevent ETH gas? ›
How to Avoid Ethereum Gas Fees
- Use DeFi Saver App.
- Optimize your Transaction Timings.
- Use DApps That Offer Discounts and Rebates.
- Utilize Gas Tokens.
- Accurate Calculation of Ethereum Gas Fees.
- Use a Layer-2 Blockchain.
The gas serves an integral role in facilitating compensation to miners for the computing resources and effort required for validating transactions and including them in the blockchain. You can think of gas fees as the amount of computational power needed for recording transactions on the Ethereum blockchain.
What causes high gas fees? ›
The price of gas is dynamic and is essentially a product of demand: the more people that are trying to get their transactions processed by the network, the higher it will be.
What are ETH gas fees and why are they so high? ›
When demand is higher on the Ethereum network, ETH gas fees go up. The network demand and transaction complexity determines the cost of gas, which makes waiting around for low-traffic times a good way to save money on gas fees (generally Sundays, or at times outside of working hours in the U.S. and Europe.)
Who pays gas fees? ›
Who Receives Gas Fees? Gas fees go to those supporting and securing the Ethereum network. On Ethereum's execution layer (formerly referred to as Ethereum 1.0), gas fee payouts go to Proof-of-Work (PoW) miners on the Ethereum protocol.
Does Bitcoin have gas fees? ›
Does Bitcoin have gas fees? The term "gas fee" wasn't used in cryptocurrency before Ethereum. Therefore, most people don't refer to the transaction costs on Bitcoin's blockchain as "gas fees." Instead, it's more common to refer to Bitcoin's fees as either "network fees" or "miner fees."
How much is Ethereum gas fee now? ›
Ethereum Average Gas Price is at a current level of 29.19, down from 37.54 yesterday and down from 64.57 one year ago. This is a change of -22.25% from yesterday and -54.79% from one year ago.
What happens when out of gas Ethereum? ›
This means that all the gas units up to the limit you set were used up before the transaction could be fully processed. To avoid another "out of gas" error, you will need to increase the gas limit of your next transaction.
Why does crypto need gas fees? ›
Since each Ethereum transaction requires computational resources to execute, each transaction requires a fee. Gas refers to the fee required to execute a transaction on Ethereum, regardless of transaction success or failure. Gas fees are paid in Ethereum's native currency, ether (ETH).
The gas fees go to crypto miners whose computers are used to validate blocks of transactions on the Ethereum blockchain network. Gas is paid in Ethereum ETH $1920.24 's native currency, Ether, which is the actual cryptocurrency that investors trade on a crypto exchange app.
What happens with gas fees? ›
Gas fees are the fees users pay on Ethereum to conduct transactions such as swapping or executing smart contracts. Users can only pay this fee in ether (ETH). The network nodes earn a fraction of this fee for spending computing power to validate and confirm the transactions, and the remainder of the fee is burned.
Who controls gas prices in USA? ›
Five Fast Facts About U.S. Gasoline Prices. Petroleum prices are determined by market forces of supply and demand, not individual companies, and the price of crude oil is the primary determinant of the price we pay at the pump.
How do you fix high gas prices? ›
Some of these steps include:
- Slow down. * Each 5 mph you drive over 60 mph is like paying an additional $0.15 per gallon for gas. ...
- Keep your car maintained and running smoothly. * Tune ups. ...
- Use your engine wisely. * Avoid Excessive Idling. ...
- Be smart about driving. ...
- Keep your car light.
The main components of the retail price of gasoline
- The cost of crude oil.
- Refining costs and profits.
- Distribution and marketing costs and profits.
- Taxes.
Zero Gas Fees.
SKALE is the only blockchain network capable of running an unlimited number of fast, on-demand, pooled-security Blockchains with zero gas fees to end users. SKALE enables developers to deploy their own interoperable EVM blockchain in minutes without sacrificing security or decentralization.
Why are crypto fees so high? ›
Because most Bitcoin blocks are only 1MB-1.5MB, each block processes a limited number of transactions, leading to long waiting periods and, sometimes, higher fees.
What does Ethereum gas fee depend on? ›
Ethereum gas fee is the fees you have to pay for using the Ethereum Blockchain. The gas fee depends on the price of Ethereum and network congestion.
Will ETH 2.0 reduce gas fees? ›
Ethereum's notorious gas fees are unlikely to fall straight after the Merge completes. It won't be until Ethereum 2.0 implements blockchain sharding that users see a reduction in on-chain gas fees.
How much is Bitcoin worth right now in USD? ›
Bitcoin Price Chart (BTC/USD)
| 24 Hour High | 24 Hour Low | Market Capitalization |
|---|
| 27,435.61 USD | 26,768.35 USD | 521,127,078,794.88 USD |
The average fee for sending Bitcoin(BTC) to another wallet costs just $1.50 regardless of the transfer amount. Similarly, Ethereum(ETH) costs an average of 0.75% per transaction.
What are NFT gas fees? ›
NFT gas is a price charged to auditors to maintain the security of the blockchain. Without fuel fees, validators would have no motivation to stake their ETH and safeguard the network. All blockchain transactions, including the minting, buying, selling, and transfer of NFTs and cryptocurrencies, incur a gas fee.
How much is $200 gas fee in ETH? ›
How much is 200 Gas in Ethereum? 200 Gas is 0.296787 Ethereum.
How much is 1 gwei in usd? ›
What is the gas fee in blockchain? ›
Gas fee is a commonly used term for the cost that certain blockchain protocol users pay to network validators each time they wish to perform a function on the blockchain. Gas serves as an incentive for network validators to record transactions accurately and behave honestly in the upkeep of the protocol.
What happens if Ethereum goes to zero? ›
These individuals, also known as nodes, are responsible for verifying Ethereum transactions and maintaining the transparency and immutability of the network. Validators are paid in ETH, so if its value drops to nothing, they would no longer have any incentive to continue securing the blockchain.
Can a smart contract run out of gas? ›
Gas is the currency used to incentivize miners to execute OPCODEs on the EVM. Each transaction on Ethereum is ATOMic, meaning every OPCODE in the transaction must run otherwise the entire transaction is rejected. So if you run out of gas, your transaction will simply revert .
What happens if you don t have enough ETH for gas fees? ›
If you don't have enough ETH, you can click 'Buy Ether' to replenish your wallet. You can also learn more about the way gas works in our What is Gas article, but generally, a standard ETH transaction will take a gas limit of 21000 and sending tokens will require 50000 gas - 100000 gas .
What time of day are ETH gas fees lowest? ›
When are the Ethereum gas fees the lowest? Between 2 and 6 PM UTC,Ethereum transaction fees are the highest. The best times to do Ethereum transactions are early in the morning,between 1:00 and 2:00 UTC,or late at night,between 9:00 and 11:00 UTC.
What is a cold wallet? ›
A cold wallet is a type of cryptocurrency wallet that securely stores your private crypto keys offline, usually on a physical device. It's also known as a hardware wallet, and it protects your digital crypto assets from online hackers by using a flash drive-like device that isn't connected to the internet.
There are two types of accounts in Ethereum: Externally Owned Accounts (EOA) and Contract Accounts.
What is the difference between Ethereum and Bitcoin gas fee? ›
Gas fees are the Ethereum equivalent of Bitcoin transaction fees. Specifically, gas is the term used to describe the amount of ether (ETH) required to interact with the Ethereum blockchain. Like Bitcoin miners, these Ethereum transaction fees compensate miners for the energy necessary to validate network transactions.
Can you get gas fees back? ›
Gas paid is not a fee that MetaMask receives so we cannot refund it. This fee is paid to validators for finalizing transactions, validating them into blocks, and securing the blockchain. The Ethereum network requires gas to execute transactions.
Who owns most of US gas? ›
The ownership of oil and natural gas companies may not be what people commonly think it is or expect it to be. The fact is that over 80% of the ownership of oil and gas companies in America is held by private individuals, either in their individual names or through their IRA, mutual fund or pension fund.
What can the government do to reduce gas prices? ›
Vehicle Efficiency Standards. One long-run solution to reduce the burden of higher gasoline prices is to strengthen vehicle efficiency standards (which regulate the average efficiency of new vehicles), thus ensuring that new vehicles will require less gasoline to travel the same distance.
How much will gas be if oil is $150 a barrel? ›
$150 oil would translate to $5 gas
Veteran energy analyst Tom Kloza, president of the Oil Price Information Service, said $150 oil would roughly translate to $5-a-gallon gasoline nationally.
What happens if gas prices stay high? ›
Rising gas prices may force some businesses to re-evaluate their hiring plans, holding off because they are uncertain about the economy's health. Less discretionary spending results in decreased sales, both of which can influence a company's ability to hire.
Are people driving less because of gas prices? ›
Nearly half of Americans (45%) say they are driving less than they did before the pandemic hit in early 2020, and they cite gas prices as the main reason why, according to a new national consumer survey released by NACS-The Association for Convenience and Fuel Retailing.
What would it take to reduce the overall demand for gasoline in the United States? ›
Such measures could include buying more-fuel-efficient vehi- cles, reducing their driving (for example, by carpooling or taking public transportation), improving their vehicles' maintenance, or driving more slowly.
Who really controls the price of oil? ›
The Determinants of Oil Prices
With oil's stature as a high-demand global commodity comes the possibility that major fluctuations in price can have a significant economic impact. The two primary factors that impact the price of oil are: Supply and demand. Cost of production.
The top five source countries of U.S. gross petroleum imports in 2022 were Canada, Mexico, Saudi Arabia, Iraq, and Colombia. Note: Ranking in the table is based on gross imports by country of origin. Net import volumes in the table may not equal gross imports minus exports because of independent rounding of data.
Should the government set the price of gasoline? ›
It's been done before, typically during times of crisis, but for most mainstream economists, the answer to this question is a resounding “no.” Limiting how much companies can charge will distort markets, they argue, causing shortages and exacerbating supply chain problems while only temporarily reducing inflation.
What are the current ETH gas fees? ›
Ethereum Average Gas Price is at a current level of 52.79, up from 43.75 yesterday and up from 37.96 one year ago. This is a change of 20.66% from yesterday and 39.06% from one year ago.
How much is the gas fees of 100 dollars? ›
Historical Exchange Rate Graph for USD to GAS
The conversion value for 100 USD to 34.844 GAS.
What is the current ETH fee? ›
Basic Info. Ethereum Average Transaction Fee is at a current level of 0.0006, unchanged from 0.0006 yesterday and up from 0.0005 one year ago. This is a change of 0.00% from yesterday and 20.00% from one year ago.
What is the minimum gas fee for ETH? ›
By default, the minimum gas unit you must spend on any Ethereum transaction is 21,000.
How do gas fees work? ›
Gas fees are used to compensate Ethereum miners for their work in verifying transactions and securing the network. Gas fees also help keep the network from becoming bogged down by malicious users spamming the network with transactions. Ethereum gas fees vary because the formula used to calculate them is dynamic.
Does buying ETH cost gas? ›
Since each Ethereum transaction requires computational resources to execute, each transaction requires a fee. Gas refers to the fee required to execute a transaction on Ethereum, regardless of transaction success or failure. Gas fees are paid in Ethereum's native currency, ether (ETH).
Who has the most expensive gas? ›
The west coast leads the nation with the most expensive gas prices, especially California at $4.90 a gallon.
How much is $50 dollars worth of gas? ›
US Dollar to Gas
| $ US Dollar | Gas |
|---|
| 1 | 0.3690 |
| 5.00 | 1.85 |
| 10.00 | 3.69 |
| 50.00 | 18.45 |
4 more rowsSo, the best way to verify that the credit card is good before you start pumping is to charge you a temporary $1 pre-authorization hold. If the card is good, the credit card company will understand the $1 charge and signal the gas company that it can go ahead with the transaction.
Are Ethereum fees fixed? ›
In most cases, Ethereum gas and fees are mainly determined by the supply and demand between the network's validators. This means that they can decline a transaction if the gas price doesn't meet their standards. It also means that the cost of gas fluctuates with the supply and demand for processing power.
How much is Bitcoin cash transaction fee? ›
A: There is no trading fee for Bitcoins Cash on Buy/Sell, but there is a spread. More information can be found here.
How do you calculate gas prices? ›
How do I calculate fuel cost? To calculate the fuel cost, we use one of the following formulas: Fuel cost = (Distance / Consumption) × Cost per gallon. Fuel cost = (Distance / 100 × Consumption) × Cost per gallon.
How much gas fee is 0.05 ETH? ›
How much is 0.05 Ethereum in Gas? 0.05 Ethereum is 33.724116 Gas.
