Surveys reveal cryptocurrencies will see mainstream adoption within a decade. However, looking at its adoption today it is highly likely that it happens even before the expected period. Today you can buy NFTs or anything you like using cryptoassests. Leading cryptoassests, Bitcoin and Ethereum are already being used for these online transactions. However, individuals using Ethereum for online transactions often complain about high gas fees associated with it. In this article let’s understand the Ethereum gas fees and why is it so high?
What Is Ethereum Gas Fees?
Also known as Gwei, gas fees on Ethereum can vary from USD 5 to USD 150. Ethereum gas fees are the fees users are required to pay while transacting on the Ethereum blockchain. Users are basically paying compensation to miners in return for computing energy needed to validate a transaction.
How Are Gas Fees Determined?
It’s a rather simple phenomenon to determine gas fees on Ethereum. They are determined by the demand and supply. Ethereum miners will demand higher gas fees if there’s a more demand for transactions on Ethereum. On the other hand, miners can settle on lower gas fees if the computational power on the miner’s end is not sufficient. Miners can also refuse to process a transaction if they are not satisfied by the gas limit set by the user. All the unprocessed transactions on Ethereum go to the ‘mempool.’ Mempool is nothing but a memory pool from where miners choose the transaction they want to validate.
The transaction fees on Ethereum is consists of three parts:
- Basic Fee – Mandatory minimum fee required to process the transaction.
- Gas Limit – It is the minimum amount the user is willing to pay the miner.
- Tip – It is the additional amount given by users to get the transaction processed prioritized by miners.
Now, let’s look at the reason behind high gas fees on Ethereum.
Why Ethereum Has High Gas Fees?
Ever wondered why Ethereum has such high gas fees? Well, there are majorly two main reasons:
- Varying Use-cases: Unlike Bitcoin, Ethereum is not just a cryptocurrency. It serves various other purposes. For instance, Ethereum acts as the launchpad of Decentralized Autonomous Organization or DAOs, and Initial Coin Offering (ICOs). Now, these features add value for enterprises. Hence Ethereum has a great demand due to these utilities. And, as explained above, higher demands lead to higher gas fees.
- Popularity: Being the second largest company, Ethereum is quite popular. But the experts believe after the Ethereum new upgrade ‘The Merge,’ the popularity of Ethereum will break through the roof. Ethereum is expected to grow by 400% in 2022. It means more people will use Ethereum and hence, miners will require more computational power to process the transaction. As a result, miners will prioritize the transactions with a high gas limit.
7 Ways To Reduce The Ethereum Gas Fees
Ethereum gas fees are undoubtedly high but here is the good news. Contrary to what many people believe, the gas fees on Ethereum can be reduced using below-mentioned methods:
- Optimize The Timing Of Your Transactions
The major reason behind higher gas fees is Congestion. Congestion in crypto means a situation where the limit of transactions on the blockchain networks exceeds its limit. Every blockchain network has a set limit.
During the congestion, the gas prices are higher. Therefore, at some point you might find greater gas fees for the same transaction. It could be tiring to find out what time of the day the gas fees are low. Ethereum Gas Charts makes it easy for you. These charts depict an elaborated graph of gas prices throughout the week. Alternatively, you can avoid transacting on weekdays. Even if it’s necessary to do transactions on weekdays, do it after midnight.
- Group Similar Transaction
Ethereum charges different gas fees on different transactions. Therefore, organizing and executing similar transactions together could save a great amount of money.
- Strategise Ahead By Analyzing Congestion On Network
In case of too many transactions in the pipeline your task could be put on hold. During this hold period, the gas fees you have planned already increased. Therefore, when miners finally decide to execute the transaction it’ll be unsuccessful and you would have given a gas limit below the current price. Due to this, sometimes you can even end up paying more for an unprocessed transaction. Therefore, use the Ethereum Gas Charts to know about the congestion in your local time.
- Leverage Gas Tokens
Another way to reduce your gas fees is through the gas tokens. You can earn ETH as rewards on deleting the storage variables on the Ethereum network. Now, this sets the base for gas tokens. When the gas fees are low you can mint a considerable amount of gas tokens. And then redeem these gas tokens for ETH while executing your transactions on the Ethereum Network. Gastoken.io is one of the well-known projects that enables you to mint gas tokens.
- Ensure Your Gas Fees Is Calculated Accurately
Since your Ethereum wallet doesn’t consider real-time transaction congestion, it doesn’t offer accurate estimates of gas fees. Therefore, you might want to refer to specialized tools such as Etherscan’s Gas Tracker or Gas Now. Using these tools you can analyze the transactions on the Ethereum. They offer time-sensitive gas fee estimates. Hence you pay fines for not setting correct gas limits or don’t pay more than you should. Basically, reduced Ethereum gas fees.
- Layer-Two Solutions Are One Option
As mentioned above congestion is the major reason behind high gas fees on Ethereum. One way out is Layer-2 solutions. Layer-2 solutions can help users in scaling up the transactions. What Layer-two does is deploy transactions on the side chains on this network. As a result, the new process reduces gas fees and accelerates transactions completely. Polygon, Optimism, and Arbitum, are two-layer two scaling solutions needed to check out.
- Use DApps Offering Discounts, Refunds or Subsidies
Certain DApps and Ethereum projects offer gas fee subsidies or minimal gas fees than the market. One such DApp is Balancer. It offers up to 90% in the form of the BAL token. KeeperDAO and Yearn’s V2 vault are other DeFi apps. They batch individual user transactions together.
Will Ethereum Gas Fees Reduce After Ethereum 2.0 Upgrade?
The highly-awaited Ethereum 2.0 Upgrade is expected to launch in September, as per the latest update. The upgrade, dubbed as ‘The Merge’, is primarily going to be the transition from the Proof-of-work mechanism to Proof-of-stake mechanism. Gas gees are another primary reason for the upgrade. The scalability of Ethereum is hampered due to the high gas fees. It directs users on other networks. Now, the upgrade aims to reduce Ethereum transaction congestion and increase the speed of Ethereum blockchain.
In addition, not having to solve complicated mathematical equations to prove a network indirectly reduces the transaction fees. Hence making it easier for additional nodes to join the network and process transactions. As a result, it will increase the scalability of Ethereum. But, how this will play out in reality will be known only after launch of ‘the Merge,’ which already is delayed and is further expected to be.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2022/08/03/here-are-7-best-ways-to-avoid-high-gas-fees-on-ethereum/