For beginners unfamiliar with Ethereum gas, the high gas fees might come as a surprise. These fees become particularly noticeable when withdrawing funds from a crypto exchange wallet. High transaction costs often occur when the token's price is still very low. But why does every Ethereum token transaction require gas? Below is an explanation of gas fees in the Ethereum blockchain system.
What is Gas Fee?
Gas Fee is a charge users pay to compensate for the computational energy required to validate transactions or create new contracts on the Ethereum blockchain.
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Gas was introduced to maintain a distinct value layer, representing only the computational consumption on the Ethereum network. It plays a critical role in the Ethereum Virtual Machine (EVM), acting as the fuel that keeps Ethereum running autonomously.
According to Ethereum.org, gas fees are denominated in gwei, a subunit of ETH. One gwei equals 0.000000001 ETH (10⁻⁹ ETH). For example, instead of saying a gas fee costs 0.000000001 ether, you could say it costs 1 gwei.
How Gas Fee Works
The Ethereum Foundation likens gas fees to fuel powering the Ethereum network. The system collects computational fees from users to process transactions on the blockchain.
How to Calculate Gas Fee
Following the London Hardfork upgrade, the updated gas fee formula is:
Total Fee = Gas Units (Limit) × (Base Fee + Tip).
Gas Units (Limit)
This refers to the maximum gas a user is willing to spend on a transaction.
Base Fee
The minimum gas required to include a transaction in the Ethereum blockchain. This fee adjusts dynamically based on network demand.
Tip
An optional fee paid to prioritize transactions. Tips incentivize miners to confirm transactions faster.
Example Calculation:
If Andi sends 1 ETH to Ratih:
- Gas required: 23,000 gwei
- Base fee: 150 gwei
- Tip: 20 gwei
Total fee = 23,000 × (150 + 20) = 3,910,000 gwei (0.00391 ETH).
⚠️ Note: If the gas limit is set too low, the transaction fails, and the fee is forfeited.
Purpose of Gas Fees
Beyond fueling transactions, gas fees:
- Secure the Ethereum network.
- Prevent spam and malicious attacks.
- Reduce wasteful computational loops.
Why Are Gas Fees Expensive?
High demand congestes Ethereum blocks, driving up fees. While frustrating, this indicates Ethereum's popularity. Developers are working on upgrades to reduce costs and improve speed.
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How to Reduce Gas Fees
While awaiting Ethereum’s upgrades, users can:
- Transact on weekends (lower demand).
- Schedule off-peak transactions (e.g., 3–7 AM UTC).
- Use alternative blockchains (e.g., Polygon, Tron) for cheaper options.
FAQ
1. What happens if I set a low gas limit?
The transaction may fail, and you lose the paid fee.
2. Can I avoid gas fees entirely?
No, but choosing off-peak times reduces costs.
3. Why does Ethereum use gas fees?
To compensate miners and secure the network.
4. How is gwei different from ETH?
1 gwei = 0.000000001 ETH.
5. Will Ethereum 2.0 lower gas fees?
Yes, upgrades aim for scalability and cost efficiency.
6. Are gas fees fixed?
No, they fluctuate based on network demand.