Understanding Gas Fees and How to Dodge Them

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Ethereum 2.0 alongside Layer 2 solutions make gas fees affordable

Gone are the days of blockchain gas fees being relatively cheap. Instead, the transaction fees skyrocket over the popularity of Web3 and NFTs, causing barriers and a bearish market.

The price of gas fluctuates concerning network congestion. Thus, popular blockchains, like Bitcoin and Ethereum, face higher gas fees because many people use the network simultaneously.

The concept of gas is relatively easy to understand, but the logistics behind the transaction fees are complicated. Therefore, it’s vital that cryptocurrency buyers know the differences between the blockchain fees, how they calculate charges, and ways the systems work towards affordability for successful trades and purchases.

WHAT ARE GAS FEES?

Gas fees are payments that cryptocurrency collectors make to complete transactions on-chain. These fees compensate blockchain miners for the computer power to verify blockchain transactions. But what makes gas fees more expensive than others is dependent on various contrasting factors.

The most critical factors for the rising costs of gas fees include block time (the amount of time needed for a blockchain to generate new blocks) and transaction throughput (the number of transactions a single block processes). For cheaper transaction fees, the ideal situation is that blocks generate quickly to hold more transactions without blocking the system due to having little space.

THE DIFFERENCES BETWEEN BLOCKCHAINS

All blockchains include contrasting block times and transaction throughputs—all of which are affected by the sizes of transactions.

Crypto collectors praise Solana for having cheap gas fees due to owning a block size of 0.4 seconds and a throughput of 20,000 transactions.

Interestingly, Ethereum gas fees are significantly more expensive than Solana because the blockchain has a block time of 13 seconds and a block size of approximately 70 transactions. Therefore, Solana is around 60,000 times cheaper than Ethereum. Nevertheless, Ethereum remains more popular. Why? Because of having the highest activity in the NFT, DeFi and Web3 space.

Differently, Bitcoin can process anywhere from 500 to more than 4000 transactions depending on the transaction size and has a block time of around 10 minutes.

HOW TO CALCULATE GAS FEES

The current price of Ethereum (ETH), the complexity of the transaction, and the number of people transacting at once all determine the cost of gas fees.

Gas prices measure in GWEI. For example, 1 billion of GWEI accounts for 1 ETH. So, if something costs 1 ETH, it costs 1 GWEI.

For a typical Ethereum transaction, most wallets and exchanges set the gas limit to 21,000 GWEI. However, users can up their gas limits to ensure their transactions go through, causing gas wars and crypto projects to have a bad reputation.

Each block also includes a base fee. The cost of a base fee is the minimum amount of gas needed to retain and adjust a transaction on the Ethereum blockchain, usually upped concerning demand. Therefore, the higher the payment, the quicker the transaction processes.

In short, Ethereum gas fees follow a straightforward calculation: Total gas fee = gas units (limit) x (base fee + tip).

MAKING GAS FEES AFFORDABLE

Many users on-chain rely heavily on Layer 2 solutions for fast and affordable transactions. Layer 2 types are secondary scaling frameworks built on top of Layer 1 blockchains, like Ethereum and Bitcoin. The two most commonly used Layer 2 solutions include side chains and rollups. For example:

  • Side chains is a separate blockchain network that has the functionalities to connect to another blockchain. It uses the smart contracts from existing blockchains to transfer tokens and reduce block time to lower the fees.
  • Rollups are scaling solutions that merge numerous blockchain transactions simultaneously while storing data on-chain. Nevertheless, each transaction executes off-chain to provide lower charges and throughput.

Both Layer 2 types supply unique benefits. However, the team behind Ethereum is a Layer 1 solution.

Next month, Ethereum is due an upgrade. Eventually, the blockchain plans to roll out 100,000 transactions per second rather than 15-40 (its current transaction time per second). In addition, gas fees will reduce significantly by transitioning to Proof-of-Stake (POF).

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