ethereum gas fees explained
To send and receive cryptocurrencies on most blockchains, you must pay a transaction fee. This transaction fee can vary widely (from less than $0.0001 to more than $100) and depends on the blockchain you are using and your current demand for block space. On ethereum, the transaction fee required to use the network is called the gas fee (or gas price). ethereum’s native currency is ether (eth) and transaction fees are paid with eth.
gas is used to pay for computing resources on the ethereum blockchain. for example, gas is required to send eth, mint and buy non-fungible tokens (nft) and to use ethereum-based smart contracts and decentralized applications (dapps). therefore, the amount of gas required to perform these functions is of interest to many network users. these gas rates vary depending on the use case. sending an eth transaction is usually cheaper, while more complicated dapp and smart contract executions tend to be more expensive. the price itself is defined by the supply and demand for transactional capacity on the network at the time of execution.
Reading: Ethereum network fees
when are gas rates lowest? why are gas rates so high sometimes?
In general, ethereum gas rates tend to vary by day of the week and time of day, with weekends and off-peak hours consistently cheaper. Gas rate calculators that track and approximate gas rates are a popular cost estimating tool. Many wallets that cater to Ethereum users (such as MetaMask) have built-in calculators that will automatically set the gas rate for you. otherwise, this gas rate must be set manually by the user. On ethereum, gas rate trackers are also used that follow the price of gas in real time. this allows you to take a wait-and-see approach to finding the lowest gas rates.
ethereum gas fees can rise continuously for days when network demand exceeds ethereum’s bandwidth capacity. The heavy reliance on Ethereum in the ICO boom of 2017 and in the decentralized finance (DEFI) surge of 2020 (known as the “Defi Summer”) fueled high levels of growth in network gas fees. Other spikes in gas rates have coincided with the popularity of NFT collecting and investing. For example, the launch of the famous Cryptokitties NFT project contributed to severe congestion on the Ethereum network. while such circumstances can be frustrating for many ethereum users, these gas fee increases are designed to bring network demand back into balance of supply and demand.
who receives the gas rates?
gas fees go to those who support and secure the ethereum network. In the Ethereum execution layer (previously known as Ethereum 1.0), gas fee payments go to proof-of-work (POW) miners on the Ethereum protocol. In the consensus layer of Ethereum (formerly known as Ethereum 2.0), gas fees are distributed to those who stake Eth to support this updated Proof-of-Stake (POS) variation of Ethereum. the merger of the two ethereum layers is tentatively scheduled for summer 2022.
gas fee denominations and ether transaction fees
For ease of use and to simplify the calculation of transaction costs, gas fees are generally not calculated in ether (eth). This is because one eth equals one quintillion wei (a quintillion is a one followed by 18 zeroes). For this reason, gas fees are most commonly denominated in gwei, which is equal to one billion wei. Although there are more than ten different denominations for different amounts of eth, these three denominations are the most widely used. Let’s look at a written example of an identical quantity using all three conventions:
For most users, relying on gwei as a base unit is the preferred means of keeping track of current gas rates. For this reason, you may see gas rate trackers and gas rate calculators referred to as gwei trackers and gwei calculators, respectively. As ethereum gas fees have increased, so has the rise of layer 2 solutions that reduce gas fees by batching transactions off-chain before establishing them on the ethereum mainnet. Examples of notable scaling solutions for ethereum include dydx, looping, arbitrum, immutable x, polygon, optimism, and skale network.
example of gwei gas rate
Since the implementation of the Ethereum London Hard Fork on August 5, 2021, gas fees on the network have used a base fee and a tip fee, or priority fee. the base fee is the minimum price of gasoline and is determined algorithmically based on the demand for ethereum block space. these base fees are then burned to reduce the circulating supply of eth. burning a coin or token permanently removes it from the total supply.
The tip fee is optional, but is included so your transaction is processed more quickly when network congestion causes a backlog of orders in the ethereum mempool, which refers to the remaining unprocessed transactions on the network at one point. the larger the tip, the faster your transaction will be processed. Ethical transaction speeds fall into three categories:
fast: These transactions must be processed in less than 30 seconds.
standard: A standard transaction should take less than five minutes to execute.
slow: For those who can wait up to 30 minutes and want to pay a cheaper gas rate, they can choose a slow transaction base gas rate.
since ethereum has a block time of around 13 seconds, a fast transaction is usually executed in the first or second block. To calculate your total rate, multiply your base rate (and tip if you add one) by the maximum number of gas units you’re willing to pay (also known as the gas unit limit or gas cap):
(base fee + tip) * gas unit limit = total eth transaction fee
let’s see how this works in practice. john crypto wants to send jane blockchain 1.5 eth. we will use 75 gwei as base fare, add 5 gwei tip, and say gas limit is 30,000; Let’s plug these numbers into our formula:
(75 gwei + 5 gwei) * 30,000 gwei = 2,400,000 gwei
When converted to eth, this gwei transaction fee equals 0.0024 eth. so john would need to spend 1.5024 eth (transaction amount + transaction fee) to send jane 1.5 eth.
While fluctuations in gas fees can be a challenge for new ethereum users, they are a boon to network security. A main reason many blockchains maintain transaction fees is to prevent malicious actors from spamming the network, because the cost of trying to do so can become too high to be profitable. transaction fees also help reduce inefficiencies in the ethereum smart contract and dapp code that could reduce network speed and performance. Furthermore, with the myriad of updates implemented through various ethereum upgrades, the process of paying and setting gas fees has become much clearer and simpler.