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What Are Crypto Gas Fees?

Read 3 min
Beginner
Blockcahin on a grey background
KEY TAKEAWAYS:
— Gas fees are a necessary part of transactions on most blockchains: it’s how you pay for the work of processing your transaction.

— Gas fees vary from network to network, but they also fluctuate with market cycles; meaning gas fees in the bull market are typically much higher.

— Although gas fees can seem confusing, most chains offer calculators and formulas to help you estimate how much a transaction may cost.

Let’s face it, no one likes the sound of fees, and in the crypto world, it’s no different. Who wants to pay more than what they agreed to hand over? However, if you want to do anything in the web3 realm, you’ll have to get to grips with gas fees. Although they may seem inconvenient, they are a core feature of blockchain networks. Without them, you might not have participants willing to process your transactions.

But what are they to do with the transaction process and why are they so important

Well, there’s a lot more to crypto gas fees than you’d think, but let’s get one thing straight. Crypto gas fees are essential, and if you want to explore crypto, you’re going to need to pay up.

But what are crypto gas fees exactly

What Are Crypto Gas Fees?

Crypto gas fees are simply fees you pay to a crypto network to execute your request. Every transaction you confirm will cost a transaction fee or gas fee. Almost every type of blockchain network will have some sort of gas fee model. In short, these fees go to the network participants that process the transaction. It essentially acts as an incentive. However, the exact gas fee you will pay per transaction will depend on which network you are using, how the network works, and the network congestion.

To understand what affects these fees, let’s first understand how they work.

How Do Crypto Gas Fees Work?

it’s important to note that how the fee model works is already set out in a blockchain’s underlying tech infrastructure. And they may work differently from network to network. However, typically, the gas fee model charges the initiator of a transaction a small fee to process the transaction. This fee goes to the network participant who includes the transaction in a new block.

That seems simple enough, right

From there, it can become more complex. For example, sometimes the participants who process transactions may have more or fewer transactions to process. When the network is busy, there are too many transactions to choose from, so they decide to choose the transactions offering the largest rewards. This means that the bigger the gas fee you pay, the quicker your transaction will be processed. In times of network congestion, you’ll find that people are willing to pay higher fees to get their transactions processed first. This means that the gas fee fluctuates in correlation with how many people are using the network at a given time. The busier the network is, the more transactions block builders have to choose from. The more choice they have, the higher the fees will be.

However, not all networks use this exact fee model either. In some cases, such as with the Klaytn network, a portion of gas fees are collected in a treasury to help the founders create a better network. In other cases, a portion of the fees are paid directly back to those who interact with the network. Other networks, such as Immutable X, don’t charge gas fees at all. In short, the gas fee model depends on the network’s underlying infrastructure. So if you want to work out how much you will pay, you will need to do some research.

Why Must I Pay Crypto Gas Fees?

Crypto gas fees go to miners or validators of the network to process your transaction. In short, you pay crypto gas fees as an incentive. On different networks, the incentive works slightly differently.

For example, on proof-of-work networks, adding transactions to blocks requires specialized equipment and expert knowledge. Not only that, it also consumes an incredible amount of energy. Being able to maintain a high-level piece of equipment and pay for the energy requires start-up and upkeep costs. Put simply, the miner on a proof-of-work network needs an incentive to just break even! Proof-of-work networks thus reward miners with a block reward for their hard work, usually in newly minted currency.

While proof-of-stake networks do not require as much energy costs, ensuring the hardware’s uptime can also be a challenge. Instead of mining cryptocurrency, validators in a proof-of-stake system receive rewards periodically, as long as they validate transactions effectively.

Ethereum Gas Fees

On the Ethereum network, gas fees are paid to all effective validators. To become a validator in the first place, these participants must stake, i.e. lock up, 32ETH as collateral. If they act honorably, they will receive a reward and if they don’t, their stake is slashed. The rewards the validators receive come from the transaction fees you pay each time you interact with the network.

Ethereum gas fees can fluctuate wildly, as they are dependent on the congestion on the network, the availability of validators, and the relative price of Ether. Since the gas fee costs just a fraction of 1ETH, we use Ether’s smaller denomination, gwei. There are

1,000,000,000 gwei in one ether. Thus the gas fee is calculated using this simple formula.

Gas Limit x Current gas price per unit in gwei = Gas Fee

e.g. if the gas limit is 10,000 and the price per unit is 100 gwei,

10,000 x 100 = 1,000,000 gwei = 0.001 ETH

Luckily, you don’t usually have to do this calculation yourself because there are countless Ethereum gas fee calculators you can find online. A great example of a powerful free tool to calculate the current prices is Etherscan’s gas calculator.

Bitcoin Network Fees

Bitcoin network fees go directly to the miners that include the transactions in a block. Much like on the Ethereum network, the cost to send Bitcoin depends on the size of the transaction and the network usage at the time. Of course, the price of Bitcoin also fluctuates, so the equivalent price you may pay for a Bitcoin transaction in dollars or euros can vary greatly too.

On average, the bitcoin network fee is around $10 to $30 per transaction in 2024, however, the lifetime average cost of a transaction is around $2. When more people are transacting on the network, the fees can increase significantly, For example, during the bull market of 2021 the bitcoin network fee surged to around $60. If you want to know how much you should expect to pay for a transaction, there is a range of free averaging tools such as bitcoinfees

Crypto Gas Fees: A Blessing, not a Curse

Understanding and accepting crypto gas fees is crucial for anyone engaging in the web3 realm, acknowledging the importance of incentivizing network participants for transaction processing. While crypto gas fees may seem inconvenient, they are essential for blockchain networks’ operation. These fees act as incentives for participants, such as miners or validators, who process transactions. The amount you pay depends on the network, its congestion, and the type of incentive model it employs.

So don’t fear your next network fee! It’s just a price of decentralized peer-to-peer transfer; the exact mechanism that also allows you true ownership over your assets. With self-custody, only you have agency over your assets, simply paying a miner to process a transaction you’ve already agreed to. Your network fee or gas fee is the way you give back to the parties operating nodes effectively. Without them, you couldn’t buy, sell or even transfer a thing.


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