Ask CryptoVantage: Why Are Ethereum Fees So High?

What is a Gas Fee?

On Ethereum’s platform, gas fees are the prices you pay for miners to process your transaction and include the fee that goes to Ethereum’s network (to keep it running) and the fee that goes to miners as rewards for mining your transaction.

The term “gas” comes from the view that the fees are fuel for moving your transaction forward. The term also refers to “gwei” which is a small fraction of Ether (ETH). In other words, it is a transaction fee denominated in an amount of ether (ETH), where the amount you send is divided by gas price and multiplied by the gas limit to give you the total needed ETH for the transaction.

The concept of gas was introduced to maintain a distinct value layer for Ether where there is a separate unit for measuring the computational costs of using Ethereum’s virtual machine without conflating it with the price of Ether.

Therefore, every time you send funds on Ethereum’s network, you must pay a small fee to prioritize and confirm the transaction. The purpose of gas is to limit spam and DDoS attacks, and it acts like a safety meter where you send ether (ETH) according to the gas you set, and the transaction is considered successful when valid.

What Causes Ethereum’s High Gas Fees?

As traffic on the Ethereum network increases and demand for more transactions to be cleared also increases, miners increasingly prioritize transactions with a higher gas fee attached as more computational power is needed to mine.

Therefore as disparate and diverse applications launch on Ethereum’s virtual machine, a vicious cycle of miners continually using more computational resources to keep up with increased demand, and users placing higher gas fees with each transaction just to increase the likelihood of their transactions getting cleared in time gathers steam. This then sets the gas fees higher and higher for each transaction as the network becomes more congested with various transactions from various apps being put out onto Ethereum’s blockchain.

How to Avoid Paying High Gas Fees

While it is almost impossible to avoid paying fees when you’re making transactions on the blockchain, here are some tips that can help you reduce your transactional costs on Ethereum’s ecosystem.

Firstly, if at all possible only make the necessary number of transactions. There’s no point in transferring funds over and over again – instead, consolidate your activity into one or two transactions rather than several small transactions.

Secondly, wait until the price of Ether decreases for a more suitable time to transact to save on fees. For example, you could avoid buying and selling in batches and only buy when the price is low to save money on your transactions. You can always check the prices online or through an app such as CoinMarketCap. You can also wait till the network is less congested (for instance fees rise if there’s a big NFT mint going on).

Thirdly, check your gas fee before you send Ether to the network. Many wallets help users determine how much gas they should use to get faster confirmation of their transaction.

You can also use layer 2 scaling solutions such as Arbitrum, which fulfill your transactions off-chain without using too much computational power and gas fees. This allows for more transactions to be handled on Ethereum’s blockchain. Also, there is always the option of allowing your transaction to complete at any time whenever you are not in a rush. Adding a tip to make miners prioritize your transaction will only make it more expensive for you.

Conclusion: Fees Help Support Ethereum

The crypto space is still relatively new and developing at a very fast rate with many first-time users not knowing how to navigate smart contracts and transactions on platforms such as Ethereum’s. While gas fees are a necessity, they can hamper scalability, thus redirecting users to other platforms. However, Ethereum’s developer community has been working hard to address this problem through different scaling solutions.

As more users realize the advantages of crypto over fiat, the demand for decentralized applications and blockchain-based transactions will continue to grow. To accommodate this growth without setting a high price on transactions from millions of people joining the ecosystem at once, Ethereum must move to a scalable protocol with manageable gas fees. Fortunately the Ethereum 2.0 upgrade (which will see ETH transition to proof of stake) should be just the ticket.