Crypto Gas Fees Explained

There is no doubt in the fact that NFTs have taken the digital world by storm. Even if collectors put out thousands of dollars for owning these digital assets, the high transaction cost i.e. “gas fees” puts a serious damper.

With the significant rise in popularity of decentralized finance (Defi) projects, the gas fees have also gone up massively. Also with the increase in the number of users in the blockchain platform the gas fees go up because there are too many transactions to handle. This indicates that first-time buyers will gain profit margins or face a significant loss. For instance, many buyers have lost more than $200 in gas fees while buying an NFT worth a mere $30 in Ether.

So you may be wondering, what are gas fees in crypto exactly? What decides their price? Or why are gas fees so high? Don’t worry we have your back! This article will try to address these questions for your understanding.

What are gas fees?

With the help of powerful systems and a large amount of electricity, miners process and validate each transaction on the blockchain. The amount of computational effort necessary to do so is known as “gas”.

So gas fees are basically compensating fees for the computation energy required for carrying out the computations. These Gas fees serve as an incentive to miners and help reduce the spam on the network.

The majority of the NFT marketplaces make users pay NFT gas fees for selling, buying NFTs, or minting their NFTs. The value of gas fees relies on two factors i.e. number and type of computations required to verify transactions. So, the more complex the computation the more is the gas fee.

Further, with the Ethereum network, one must determine a “gas limit” that is the maximum gas an individual is willing to pay per transaction. On the other hand, the gas price is the amount you are willing to pay for each unit of gas. In short,

Total Gas fee = Gas Limit * Gas Price

The actual gas price keeps fluctuating because it depends on various factors for example network traffic. The value you set as the gas limit can determine how quickly your transaction will be processed. Hence if you set your gas fees too low, miners will prioritize transactions that offer high gas fees over yours.

Why do NFTs need gas?

Gas ensures that people using Ethereum blockchain cannot spam it. That means, it enforces certain regulations so no one can misuse the computational power. This is an efficient method to maintain security.

Miners get Cryptocurrency in exchange for smart contract transactions. So, the more gas a miner can make, the more secure the network, and the transaction will be fast with enough computational power remaining to conduct others.

Tips On Avoiding high NFT gas fees

Basically avoiding entire gas fees on any blockchain is not possible but, there are certain ways to reduce the amount. Here are a few tips to reduce the amount:

1. Pre-planning and précised timing

NFT-Gas-Fees-Ethereum
Credit: Pixabay

on high. Hence, if your transaction is not urgent, it’s best to wait till the network is less busy.

You can also use free analytics tools to understand the state of the blockchain at different times. For instance, using GasNow you can easily determine if the gas fee is higher than the average at any point in time. Ethereum Price is another tool that will display the week-long network activity. Similarly, the NFT gas station is great for in-depth analysis across different NFT marketplaces.

On the basis of the urgency of your transaction, you can reduce the fees at a précised time. So keep track of market value, analyze the network congestion, calculate the gas fees, and pre-plan whenever possible.

2. Adopting layer 2 and Sidechain Solutions

Recently, many layer 2 solutions and Ethereum sidechain platforms have come up to overcome the limitations of Ethereum. Here, there are separate blockchains built on the Ethereum network that are both faster and cheaper.

One such protocol is Polygon. It has been gradually luring many projects, especially among blockchain game developers. Polygon provides fast and low-cost transactions which are completely compatible with Ethereum.

The crypto industry eagerly waits for the development of Ethereum 2.0. So, it’s a good idea to switch to other frameworks like Polygon, or even LOOM, and SKALE for now. Along with low crypto gas fees, these come with the security of the Ethereum network.

3. Combine Transactions

Combining transactions is another way to save some gas because; the amount of gas varies depending on the type of transaction.

For instance, you are holding multiple tokens at different addresses let’s say address A and address B. Now you want to send all the tokens to address C. So if you transfer the tokens from each address separately, you will have to pay the gas price twice. But, if you were to transfer tokens from A to B, and then make one transaction from B to C, you will only have to pay half the gas price.       

4. Switch to a blockchain with low or no NFT gas fees

NFT-Gas-Fees-Binance
Credit: Binance Smart Chain

The Ethereum blockchain has emerged as the go-to network for tokens and Defi projects. As a result, the activity on this blockchain is higher and this leads to higher gas fees in comparison with other blockchains.

Thus, it is a good idea to switch to another blockchain to lower your gas expense.

However, it is important to see the pros and cons of the blockchain before migrating. While other blockchains may offer lower transaction fees and higher scalability, leaving Ethereum can pose a challenge when using third-party services that largely use Ethereum. Besides, Ethereum is more reliable because it has been tested and validated for years.

Some good alternatives to Ethereum are Tezos, EOS, and Binance Smart Chain. These are reliable options that also support smart contracts. Tezos uses the Proof-of-Stake model and provides both gasless transactions and a low carbon footprint. Hic et Nunc is a highly sought-after marketplace on Tezos and is known for its curated NFT collection. In Tezos and Binance you can use the same wallets that you use on Ethereum.

Recently, the WAX blockchain has made itself a leading decentralized network for entertainment and video games. It is home to the popular NFT marketplace Atomic Hub, which consists of top-selling creators such as Blockchain heroes and Capcom’s Street Fighter.

5. Use gas tokens

Gas tokens allow tokenizing gas, so you can mint gas tokens when gas prices are low and then use/redeem them when prices are high. So once you redeem a gas token, you will get a refund in ETH, which you can use to pay for your gas expenses.

Gas tokens make use Ethereum storage refund system. Here, users get an incentive for deleting storage variables. For instance, consider the popular gas token project GasToken.io.

GasTokens work in a simple manner. When the prices get low, you mint a token by saving data in GasToken contracts storage. Once the prices go up, you can use these tokens by sending them to the GasToken contract, and here they will get destroyed. This will get you a refund for a new transaction.

But, one should note that gas tokens are not the most ideal solution for reducing gas fees. In fact, they clog Ethereum’s state size, so there are plans to stop the refund system entirely.

Ending Note

NFT-Gas-Fees-Unsplash
Credit: Unsplash

With a surge in the number of users of blockchain, high gas fees will surely result in some major setbacks for blockchains like Ethereum. Also, traders will prefer a platform with low gas and high scalability. This has made way for new projects and methods for users to reduce gas fees.

With constant updates in layer 2 solutions and Ethereum, high crypto gas prices might soon become history. Till then, make sure you explore all the methods to reduce the fees before you make your next transactions.

FAQs

Where to check Ethereum gas fees?

Using Etherscan.io you can check the current price of Ethereum gas. This online tool will help you estimate the cost of transfers and interactions on the Ethereum blockchain. You can also see the top 50 addresses that consume and spend most of the gas.

Why gas fees are a problem for artists?

When Crypto gas fees are so high it becomes difficult for artists to create and sell their work. If an artist tries to reduce the price to afford the gas fee then, the actual value of the NFT artwork is diminished.

How do gas fees actually work?

Gas units in gas fees get converted into Gwei which is the unit for measuring gas fees. Further, if the threshold amount of gas required to process a standard transaction is 21K gas units, that figure is multiplied by the average gas cost in Gwei to determine how much ETH is necessary for the transaction.


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NFTHI does not recommend any kind of Investment in NFTs or NFT trading. All the strategies are merely educational references.

Conduct thorough research before you start with NFT trading.

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