In order to push a transaction through on the Ethereum blockchain, users must pay gas fees. Here’s everything to know about them.
What are Ethereum gas fees and why do they fluctuate so often?
In short, gas is a transaction fee on the Ethereum blockchain. Developers have to pay this fee in the native crypto, ether, to the network to use the system. Gas fees are similar to taxes, but the main difference is that gas fees can change by the second while taxes are more steady.
This fee is required to conduct a transaction on the Ethereum blockchain. Average gas fees were roughly $40 before the surging interest in NFTs last year, but that has drastically changed since, as gas fees have reached the hundreds lately. These fees fluctuate based on the dynamic formula used to calculate them and the number of transactions in motion on the network.
How gas fees work
Here is the basic formula to calculate a gas fee:
Total fee = gas units (limits) x (base fee + tip)
This formula came into play after the London Upgrade was implemented on Aug. 5, 2021 to help make transactions on the Ethereum blockchain more predictable for users.
The standard limit on an Ethereum gas fee is 21,000 units, which is the maximum amount of gas that a user is willing to spend on a single transaction. The Ethereum network reports that the base fee acts as a reserve price and is determined by the blocks before it to stay in line with the predictability effect. When the new block is mined, the base fee is removed from circulation or “burned.” The tip is what the user wishes to pay to the miner for their computational work.
It’s important to note that the more traffic on the blockchain, the higher gas fees will be. Take Bored Ape Yacht Club’s Otherside launch, for instance. Land sales for BAYC’s metaverse project drew major backlash after more than $200 million was lost to gas fees alone. Some buyers reported that gas fees ranged in price from $5,000 to $14,000 when the sales opened on April 30. Gas fees are owed to the Ethereum blockchain on top of the price of the token being purchased.
An easy way to avoid high gas fees is to make purchases when traffic is low, but that also means you may miss out on that piece of digital art you were seeking.
Reducing Gas Fees
Unfortunately, making purchases when traffic is low on the blockchain is the only quick fix to high gas fees. Some crypto enthusiasts suspect the impending Ethereum Merge will solve this issue, but that’s not the case. This is mainly because the first version of Ethereum 2.0 changes the consensus layer of Ethereum but does not touch the data availability or execution layers.
It’s possible that future versions of the Ethereum blockchain network could resolve high gas fees, but for now, they are here to stay.
Check out Boardroom’s Crypto, Blockchain, & Metaverse Glossary for more related terms.