Transacting on the Ethereum blockchain requires users to pay transaction fees known as ‘Gas fees’. Gas fees are paid in Ethereum’s native currency (ETH) and are denoted in GWEI which equals 0.000000001 ETH (10^-9).
In traditional finance or ‘TradFi’, we often pay fees to transfer funds overseas or when we withdraw cash from an ATM. Crypto is much the same – transaction fees are largely unavoidable.
Every transaction carried out on the Ethereum blockchain incurs what’s known as a ‘gas’ fee. Sending or swapping tokens, or minting NFTs, requires fees to be paid to the miners who help in validating and verifying those transactions.
Ethereum gas fees fluctuate depending upon the demand on the Ethereum network, and in the last year or so these fees have become outrageously high. In April 2022, the average price for a swap transaction was between $7 and $43, spiking up to around $450 at times in early May.
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Gas fees are paid in Ethereum’s native currency ETH, and there’s a formula to calculate the gas fee for a given transaction. Fees are denoted in ‘wei’ which is the smallest unit of ETH. 1 ETH = 1 quintillion wei i.e. that is 18 zeros after a number. To make things easier to understand, Giga-Wei or ‘gwei’ is typically used when referring to gas fees.
For example, if a transaction costs 1gwei, it means the fee is 0.000000001 ETH. The formula to calculate the gas fee after some recent upgrades is as follows:
Total Fee = Gas units * (Base fee + priority fee)
‘Gas units’ refers to the amount of gas any user is willing to spend on a given transaction, and ‘base fee’ refers to the amount of gas needed to add any new transaction to the blockchain.
The base fee correlates to demand on the network. The priority fee works much like a tip – it’s offered to miners as an incentive to execute the transaction as a priority
Due in large part to the huge rise in the popularity of NFTs, Ethereum gas fees have skyrocketed over the last year or so. While you can’t avoid these fees altogether when using Ethereum, there are certain steps you can take to help minimize your transaction costs.
1.PICK YOUR TIME WINDOW CAREFULLY
Gas fees tend to be cheaper on weekends and when the main markets are asleep. 3am on a Sunday morning New York time has been a good time to transact on Ethereum over the last couple of months, but even this time slot can be expensive. DeFi Saver is a handy app for simulating gas fees to work out how much they’re likely to cost before you pull the trigger.
2.CHOOSE APPS THAT OFFER DISCOUNTS
Several DeFi protocols either offer a gas fee refund or batch individual transactions to significantly lower the gas fees. Some popular ones include Balancer, CowSwap, KeeperDAO, and Yearn Finance to name a few.
3.USE LAYER 2 SCALING SOLUTIONS
Layer 2 (L2) scaling solutions and “rollups” on Ethereum are development techniques intended to increase transaction throughput by processing transactions off the Ethereum mainnet (layer 1) while still maintaining the same security measures and decentralization as the mainnet.
Popular sidechains include Polygon, Optimism and Arbitrum. Loopring (LRC) is the best-known rollup solution, and more are currently in development.
Last year, the Ethereum network went through an upgrade dubbed the ‘London Hard Fork’. It included a series of Ethereum Improvement Proposals (EIP-1559) which were aimed at helping to increase transaction speeds and lower costs. The upgrade was also intended to help change ETH into a deflationary asset.
Since the London Hard Fork took place, transaction speeds are still inconsistent, gas fees are still extremely high, and ETH’s price performance has not seen a dramatic improvement. For now, at least, the London Hard Fork seems to have been a lot of hype with not much (if any) tangible benefit.
PulseChain is Richard heart’s upcoming full-system-state hard-fork of the Ethereum network. Unlike the proof-of-work consensus network employed by Ethereum, PulseChain will use a proof-of-stake consensus mechanism, which will be much faster, cheaper and more and more environmentally friendly.
Rather than being an “Ethereum killer”, PulseChain will help the Ethereum network by reducing its load.
One important thing to know about PulseChain is that, if you own any ERC20s in a wallet which you hold the keys to, you will soon get a free copy of those tokens on PulseChain. Pretty cool, right?
Learn more about PulseChain by following Richard Heart on Twitter or YouTube.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
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