Gas is the unit that measures the amount of computational power required to execute operations within a specific blockchain that is used to facilitate them.
Since each transaction requires operational resources in order for it to be executed, each one has a fee as well, and this fee is the gas we pay.
But how exactly does all of these work? What is gwei, and why are we required to pay for gas?
Let’s dive deeper into the world of blockchains and discover why Ethereum gas fees are so expensive and how you can save money on them. We’ll be going over the competitors and taking an in-depth look at the gas wars.
How Does Gas Work?
Whenever you want to make a transaction on Ethereum, you require the work of computational power in order for that transaction to be executed. This incurs a fee to the network as a way to incentivize the nodes to provide this processing power to the network. The distributed network of computers running the Ethereum software are the nodes.
Gas is the fee that is required to successfully complete this transaction on the Ethereum network.
Gas fees are paid in the native cryptocurrency of the specific blockchain network. For example, Ethereum network fees are paid in the Ether (ETH) cryptocurrency token.
Additionally, these gas prices are denoted in gwei.
What is Gwei?
Gwei is a denomination of Ether (ETH), where each gwei has a value that is equal to
0.000000001 ETH (10⁻⁹ ETH)
That might be a little bit hard to grasp, so here is how you can think about it.
Let’s assume you want to make a transaction on the Ethereum network. Instead of being instructed to pay 0.000000001 Ether to conduct that transaction, it instead tells you that the gas requirement for that specific transaction costs you one gwei.
The unit gwei means “giga-wei”, which equals 1,000,000,000 wei. Furthermore, it actually got its name from the creator of b-money known as Wei Dai.
Another way you can think about gwei is in the same way that you think about cents and dollars. Additionally, if you are familiar with how Bitcoin works, you can also view it as satoshi to Bitcoins.
How Does the Measurement of Gas Work?
The measurements of gas are done differently throughout cryptocurrencies. Our main focus in this specific explanation is Ethereum, and things can get tricky, assuming you are not familiar with how all of these work.
For the sake of simplicity, let us split this category into the pre-London-Upgrade era and the Post-London-Upgrade era of Ethereum.
When it comes to the pre-London-Upgrade era, the way transaction fees on the Ethereum network were calculated went as follows:
Let’s assume that Jimmy had to pay Anna 1 ETH. The gas limit is 21,000 units in the transaction, while the gas price itself is 200 gwei.
The fee, in that case, would have been based on the following formula:
Gas units (limit) * Gas price per unit i.e 21,000 * 200 = 4,100,000 gwei.
Now you have the post-London-Upgrade era.
Here’s some context first, so you don’t get lost in all of this. You see, the way transaction fees occur on the Ethereum network was altered and changed with the London Upgrade that occurred in August of 2021.
Specifically, here’s what happened on August 5. Ethereum wanted to make transactions more predictable for users, and it did so by overhauling the transaction fee mechanism that it had in place. The benefits introduced by this change included better transaction fee estimation, quicker inclusion, and the offsetting of ETH issuance through burning a percentage of the transaction fee.
Every block has a base fee that needs to be accounted for, and this is the minimum price per unit of gas for inclusion within the block. All of this is calculated by the network
itself, and it is based on the demand for block space. As the base fee is burned, users can set a tip in their transactions.
The tip is compensation to the miners for the process of executing and propagating user transactions in blocks.
Here’s how the new calculations can be defined:
Gas units (limit) * (Base fee + tip)
So, let’s assume yet again that Jimmy wants to pay 1 ETH to Anna. In the transaction, this gas limit is 21,000 units, and the fee is 100 gwei, but Jimmy is a nice guy, so he decided to send a tip of 10 gwei as well.
So, when we take our previous formula, we have:
21,000 * (100+10) = 2,310,000.
Why Are We Required to Pay Gas?
The payments which are incurred through the payment of gas are required to remunerate the computational output, which is a requirement to process and validate all of the transactions that end up taking place within the Ethereum blockchain.
Why Is Gas More Expensive on Ethereum When Compared to Other Networks?
There are huge transactions constantly being piled up in the memory pools of Ethereum. This is due to the fact that Ethereum is the second-largest cryptocurrency network out there next to Bitcoin, and as such, most developers typically tend to develop their technologies and altcoins while basing them on the Ethereum network. The laws of supply and demand skyrocket the network fees as a result of Ethereum.
When you compare Ethereum’s network activity and compare it to the network traffic as well as the transaction fees, you can see how all of it plays out completely.
The Gas Wars
This brings us to the gas wars. Now, while Ethereum is making the switch to Proof-of-Stake (PoS) as a consensus algorithm, historically, it has relied on the Proof-of-Work (PoW) consensus algorithm instead.
Now, every single time you send a cryptocurrency asset from your wallet to another receiving wallet address, you are incurring a transaction fee. This is assuming that the
wallet is not on a centralized exchange, where it is done off-chain. The exact fee that you pay for every cryptocurrency transaction depends on the consensus protocol that is implemented by the network that you are using and the traffic on the network itself.
Bitcoin (BTC) and Ethereum (ETH) both used, at one point, Proof-of-Work (PoW), which has a totally different fee when compared to Cardano or even the Binance Smart Chain, which use Proof-of-Stake (PoS) instead.
PoW networks are known for having higher fees, especially if the volume is sky-high, while PoS networks have lower fees by comparison.
Then you have Layer-2 scaling solutions that work on top of a pre-established blockchain, such as Polygon, which uses its own Proof-of-Stake (PoS) blockchain and Commit Chain connectivity to help scale the Ethereum network.
This gave birth to what is known as “The Gas Wars,” where many competitors popped up in the crypto-world, using Proof-of-Stake (PoS) to try and solve Ethereum’s scaling issues as well as expensive gas prices. Seemingly, each of these projects attempts to lower the price of gas and entice developers and users to switch to it instead of using Ethereum.
Even Ethereum itself is slowly making its way to Ethereum 2.0, where it will make the complete switch to Proof-of-Stake (PoS), which will lower these gas fees as a result.
How to Mint, Transfer, and Trade Without Paying High Gas Fees
High gas prices on Ethereum can make it quite costly to mint and trade NFTs on the Ethereum mainnet.
Tools That Can Help You Track Gas Fees
There are numerous tools out there that have been developed with the specific intention of helping users track the current gas prices as well as the historical data about the gas prices.
For example, you have GasNow.org, which helps you track the gas prices at each hour of the last seven days, and this, in turn, gives you an idea of when you may be able to mint in a window where it is less expensive, assuming you are minting the NFT yourself.
Note that GasNow also features a browser extension, and there are many others developed like it that offer similar data.
For example, you also have the Ethereum Gas Price Extension. This is a free utility for your browser, one that helps you decide how much to spend on the next Ethereum transaction.
How You Can See Gas Fees in Etherscan by Each Txn
Etherscan provides charts with efficient data on the Ethereum gas fees.
This is in the form of the Ethereum Gas Tracker.
Here, you have an overview of the low, average, and high costs of gwei.
Additionally, you have a chart about the confirmation time X the gas price in the last 1,000 blocks.
As you move along Etherscan’s gas tracker, you will see the top 50 gas guzzlers, where you can individually see similar data about each one of them.
For example, let’s click on the first one, Uniswap V2.
Here, we can see data about each transaction, including its Txn hash and value.
Txn hash means Transaction Hash and is also known as Transaction ID (TxID). It consists of alphanumeric characters and is an identification number given for a transaction. Each Tnx hash or transaction hash has a unique identifier that is generated whenever a transaction is performed and can be used to track and trace the status of a transaction.
In this list, we will be able to review the total gas price of the transaction and its value in Ether. You can view an example here.
Etherscan essentially gives us an inside look into the gas fees that occur on Ethereum, including detailed information about the value, maximum txn cost and fee, the gas price, and the txn type.
Alternatives for Paying High Gas
The best alternatives to paying high fees on the Ethereum blockchain are using a different blockchain to mint NFTs with lower gas prices or using an Ethereum Layer 2 scaling solution.
Let’s assume for a second that you want to mint an NFT on NiftyKit. NiftyKit launched on Polygon, a Layer 2 Network, which allowed for one-click deployment, but most importantly, provided ETH compatibility, scalability, and security.
Given that creating an NFT on Ethereum is costly because the network is congested with activity, Polygon shakes things up by using a Proof-of-Stake (PoS) sidechain known as Matic POS. By moving the transactions away from the Ethereum mainnet, Polygon can process transactions at a higher speed as well as at a lower cost, making it a solid alternative.
In other words, there are other Layer-2 solutions out there, as well as other blockchains that let you mint NFTs, so it is up to you to make an educated decision about where you can avoid paying high gas fees.