One of the updates that Ethereum users have been eagerly anticipating for quite some time is the prospect of lower gas fees. With Ethereum now solidly the second most active cryptocurrency network, and the largest and most widely used decentralized application blockchain, this is an issue that will directly impact millions of Ethereum users across the globe.
Despite the fact that each update to the network has provided lower gas fees, this issue has continued to be a concern to many Ethereum users.
In many respects, this is a function of both the volatile nature of the energy market, as well as the ebb and flow of the Ethereum network itself. Gas fees will tend to fluctuate in line with market demand, which inevitably has an impact. We have seen this in play in recent months as the NFT market has slowly started to gain some upward momentum.
For those of you just getting started investing in Ethereum, you may have found yourself scratching your head at the idea of what gas fees actually are. Even more importantly, you may have wondered why you must pay such a wide-ranging amount depending on the kind of transaction you are making.
If you are one of these individuals and want to find out exactly what gas fees are, how they can impact any Ethereum transaction you are planning to make and how to optimize them, keep reading this short article!
What are gas fees?
Gas fees are the fees you are required to pay in order to successfully conduct a transaction on the Ethereum blockchain platform. This might be sending a unit of Ethereum to another user or executing a smart contract.
Users pay this fee in tiny, fractional units of Ethereum. These tiny denominations are called gwei and will be used to pay the network nodes validating the transaction. This helps to cover the energy costs of the transaction itself and also incentivizes network nodes to continue helping the network function.
This incentivization is particularly important as the more active network nodes there are, the more efficient the network will be!
The concept of ‘gas’ was introduced to compensate miners for their work in maintaining the network. Following the implementation of the proof of stake upgrade in September 2022, gas fees became the reward for staking ETH and participating in validation.
If gas fees didn’t exist, there would be little incentive to validate transactions and the Ethereum blockchain and its ecosystem would suffer.
How are gas fees calculated?
Unlike a credit card company or a bank, gas fees are not set and will fluctuate in line with several factors. This includes the overall supply, the demand placed on the network at that moment, and the overall capacity of the network when the transaction is initiated.
For this reason, the costs associated with any Ethereum transactions can vary widely. This is something you will immediately notice across the different uses Ethereum has been employed, as we can clearly see on this list of Ethereum betting sites!
The calculation of gas fees underwent a significant upgrade as part of the London upgrade. Prior to this upgrade, gas fees were equal to: Gas Units (Limit) x Gas Price Per Unit.
After the London upgrade, this has changed to: Gas Units (Limit) x (Base Fee + Priority Fee).
How can I reduce or optimize gas fees?
With this basic understanding in mind, the question that remains to be asked is: how can I lower or optimize my gas fees?
Although gas fees are inevitable and have an important role in supporting the Ethereum network, it is still annoying to have to pay them! With that said, here are some ways to minimize the total amount of gas fees you might have to pay:
- Estimate gas fees in advance using a simulation tool. Although this won’t be 100% accurate, it will give you a decent idea of what you can expect to pay.
- Optimize your transaction timing. Choose points during the day where the network volume is lower to have an immediate impact on your estimated gas fees for a given transaction.
- Look out for discounts and rebates. Some dApps and platforms will offer discounts and rebates on gas fees, so be sure to keep your eyes open for any special offers!
- Pre-empt network congestion. Use live gas pricing charts to keep an eye on network congestion and to make transaction timing decisions.