Started as the term for transaction fees in the Ethereum chain, the gas fee is now a commonly used term for all transaction fees around the crypto environment except Bitcoin and Solana chains.
Basically, the gas fee is what you pay to do a transaction. In this article, let’s dig deeper into the gas fee, covering its history, etymology, how to calculate, and ways to reduce the gas fees. Let’s start.
What is a Gas Fee?
In the blockchain ecosystem, any process requires computing power. From token transactions to buying NFTs, all the transactions and verification use the computing power of the networking computers.
These networked computers, called miners, execute and verify the transactions, and get a transaction fee as a reward. In the Bitcoin blockchain, the miners get newly mined Bitcoins as transaction fees. Users can voluntarily set up their miners.
Bitcoin is considered digital Gold and Ethereum is digital Gas (fuel). In the case of Ethereum, the term “gas fee” is used instead of transaction fees. The name comes from the similarity of its transaction fees to the vehicle’s fuel.
The History of Gas Fee
Initially, Ethereum worked with the same method as Bitcoin in transactions. It employed a Proof-of-Work (PoW) mechanism for transactions but with the phrase “gas fee” instead of “transaction fee”, paid in gwei. Gwei is similar to Satoshi, the unit of Bitcoin. A gwei is one-billionth of one ETH.
Ethereum later moved to a Proof-of-Stake (PoS) consensus. With Proof-of-Stake, one can lock up a certain amount of ETH and participate in the validation of transactions. Holders have to stake a minimum of 32 ETH to become a validator.
The gas fees were considered to be very low until 2020, but after the sudden increase in market capitalization, the gas fees are very high. Also, in 2021 Ethereum upgraded its mechanism of calculating the gs fees.
All the tokens built on the Ethereum chain, including Polygon, use the term gas fee. Although introduced by Ethereum, the term slowly became common to most other chains except Bitcoin and Solana.
How Gas Fees Are Calculated?
The amount of gas required to process a transaction is based on the mathematical complexity of the transaction. There is a base limit to the transaction to check eligibility. Also, there is a priority fee, an optional fee as an incentive to advance the transaction speed.
Gas fees are very unpredictable and change within microseconds. You can find Ethereum Gas Fee Calculators on the web to calculate the fees instantly. Many newbie users skip Ethereum because of its high gas fees.
How to Pay Less Gas Fee?
There are several ways to reduce the ETH gas fees to an extent. Here are some of them:
- Right Timing: When looking at the gas fee price history and comparing it to the on-chain transaction data, we can observe that the gas fees are typically low during periods of high volume of transactions. When the network is overcrowded, the gas fee is low.
- Group the Transactions: Consider grouping multiple transactions and executing them together. This helps you to optimize the gas usage, significantly reducing the gas fees.
- Layer 2 Solutions: Layer 2 solutions are the ecosystems that create a second layer over the native blockchain to enhance the scalability. With Layer 2 protocols, transactions are quick and cost less computational data. Some examples are Optimism, Looping, and Arbitrum.
- Find Discounts: A large number of new crypto ventures have arrived on the market, and most of them are offering discounts to engage with their platforms. Find some platforms where you can do transactions at a discounted rate.
- Use Online Gas Tools: There are plenty of ETH gas-related tools available online. You can use tools like Gas Station and GasNow to know the real-time gas fees. Also, use historical data to find certain price patterns that may reduce the gas fee.
- Use Other Blockchains: If you can’t afford ETH gas fees, it is better to use other blockchains like Binance Smart Chain (BSC), Solana, and Polygon.
Final Thoughts
Every blockchain needs gas fees/transaction fees to work. The gas fee is a mandatory part of the crypto ecosystem. Without gas fees, blockchain decentralization won’t be complete.
However, the rise in gas fees is a curse to users, especially to those who are transferring NFTs. It is important to do timely transactions and employ other tactics to lower gas fees. Thank you for reading.
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