Cryptocurrency

Ethereum Gas Fees Explained | Why is ETH Transaction Fee so High?

Ethereum Gas Fees: All You Need to Know

Key Takeaways:

  • Ethereum gas fee is the fees you have to pay for using the Ethereum Blockchain
  • The gas fee depends on the price of Ethereum and network congestion.
  • One can find the best slots to optimize and analyze ethereum gas fee price chart.
  • You can reduce the gas fees to an extent by optimizing them using various tricks.
  • Upcoming Ethereum Merge has no impact on the gas fee.

Ethereum Gas Fee Explained:

But what is gas fee after all? More importantly, how is it calculated? Well, that’s exactly what we’ll discuss now

Think of Ethereum as a highway and all your transactions as cars. The gas fee in this analogy would be the toll tax you would pay. But why would someone pay the toll for each transaction? Because this highway leads to some amazing destinations (Decentralized Applications). Destinations that no other highway (Blockchain) could offer.

But does Ethereum use this toll fee to maintain the infrastructure like an actual highway? Yes. A part of this toll fee would go to miners who are validating every transaction to make sure that Blockchain is always error and fraud-proof. Another part of it goes into revenue for Ethereum. They use it to push regular updates that improve our overall experience of the highway.

Ethereum gas is the fee every individual has to pay for using the network. It is the incentive layer for the miners to verify the transactions on the blockchain using their computing power.

How are Ethereum Gas Fees Determined?

Now if you have ventured into cryptoverse for a while, you’d know that gas fee is not a constant. An exactly same transaction could cost you ten bucks to a staggering $80-100 at times. Why is that so? The answer lies in the way this gas fee is calculated. The gas fee is dependent on two factors. Gas units and gas price.

Gas fee= gas units X gas price

Gas units is a number that depends on the amount of computation required for a transaction. For e.g., if you send some Ether to someone, it requires 21,000 gas units. It’s the minimum number of units required for any transaction. On the other hand, Gas price is determined by the demand for making transactions. The more traffic, the higher the price. This is why you don’t pay the same gas fee each time you transact.

The gas fee is usually expressed in Gwei which is a billionth part of an Ether. If the gas price is 100 Gwei, it means 1 gas unit currently costs 100 Gwei as per the demand. The gas price may vary throughout the day depending on the total traffic. Let’s combine these two now. If you need to send some ETH to someone at a time when the gas price for 1 gas unit is 100 Gwei, you’ll have to pay a total of -:

21,000 gas units x 100 Gwei = 2,100,000 Gwei

Since Gwei is one billionth of an ETH, you’ll pay 0.0021 Ether.

To find the amount in dollars, multiply it by the price of ether i.e. 1200 USD (assumed).

Hence 0.0021 Ether x 1200 USD = 2.52 USD total gas fee

In short, the gas fee depends on the following parameters:

  1. Complexity of transaction (gas unit)
  2. Demand for making transactions (gas price)
  3. Price of Ether (to calculate dollar value)

From the above calculation it is rather easy to predict the Reasons for increasing cost of Ethereum gas fees. Ethereum’s gas fee would jump up if there is the network is too congested. In that case, a lot of miners would seek higher fees to process the transactions. Also, if the price of Ether jumps up, it is once again not a good sign for gas fee. Think of it as oil that is mandatory to run the show. If the oil becomes too expensive, not a lot of us are going to drive as much as we would want to. If gas fee did not burn a hole in your pocket, you can also pay a priority fee in the form of tip so that miners pick up your transaction before anyone else.

Additional Read: Ethereum vs Solana vs Polygon

What is Ethereum Gas Limit?

As discussed above, the standard limit on an Ethereum gas fee is 21,000 gas units. This means for a specific type of transaction, a user will NOT be able to consume more than these units. In this case, sending Ether to someone will not take more than 21,000 gas units. While executing a transaction, you can set any gas fee. In case you set it more than the limit, EVM will refund you the excess. However, if you spend less than the limit, there is a chance that your transaction never gets picked up by the miners.

There is also a risk of losing your ETH in such a case. Say you only allocate 20,000 units to send ETH. The system will try to spend 20,000 units but will eventually fail, resulting in a loss of 20,000 units worth of Ether.

When is ETH Transaction Fee the Lowest?

As it turns out that each country has a specific period of activity. If you study that well, you can easily predict the time slots when the gas fee is the lowest for you. The busiest and most expensive times are on weekdays from 5:30 PM to 10:30 PM (IST). This is mainly because US and EU are at full throttle during these working hours. On weekdays, ETH gas price is lowest from 9:30 AM to 1:30 PM (IST)—when most of America is asleep, Europe is just about to start its day.

The best time to make an ETH transaction is on a Sunday from 6 AM to 8 AM (IST)—that’s when ETH gas prices are at their lowest. You can also go ahead and pick out the best time slot for your transactions by analysing the Ethereum gas fees chart. 

Ways to Reduce Your Ethereum Gas Fees?

Okay. Now that we are well acquainted with the way gas fee is calculated and what are the best times to do a transaction, let us understand some of the ways in which one can optimize gas fees.

Optimize Transaction Time:

As discussed above, analyze the ethereum gas fees chart to find out the slots that work best for you. You can batch your transactions in a way that low-priority transactions are conducted only when the gas prices are under control. Apart from that, take your trades when the prices are not shooting up.

dApp Discounts:

There are many applications that refund the gas fee in a bid to lure users. Try to find such apps and use them to your good. For example, if you are a derivative trader, you can use Injective exchange. This exchange refunds all forms of fee that is required to onboard one to the Injective blockchain. Balancer is another example of a dApp that refunds gas fee in the form of BAL tokens.

DeFi Saver:

Apps like DeFi saver allow you to simulate your transactions so that you have a clear picture of what you are going to pay. It also allows you to customize your transaction to minimize the fee involved.

Layer 2 Solutions

Layer 2 solutions like Polygon and Harmony are helping the world to join Ethereum at a low cost. They provide a bunch of solutions which help in addressing Ethereum’s scalability issues. The fundamental idea is to offload transactions from Ethereum, process them parallelly elsewhere and share the final results back with Ethereum. This way a user ends up saving 99% of the gas fee levied by the Ethereum Network.

Additional Read: Common Misconceptions around Ethereum merge 

Will the Upcoming Merge reduce Ethereum Gas Fees?

The Ethereum Merge would have no significant impact on the gas fee of Ethereum. This is mainly because the merge impacts the consensus layer only. 

Think of Ethereum as a Sandwich. You have bread, ham, lettuce and sauces. The Merge is only going to change ham to something vegan and eco-friendly. In other words, it is only going to bring a significant impact in the way consensus is achieved. The parameters that would impact fees and speed are dependent on other layers which remain unchanged.

With that being said, the merge is a step in the right direction for sure. The eventual upgrades would address the issues like gas fee as well. Merge is simply laying the foundation for future upgrades.

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