What Are Ethereum Gas Fees?

Ethereum Gas Fees Explained

In order to send and receive crypto on most blockchains, you must pay a transaction fee. This transaction fee can vary widely (from less than USD 0.0001 to over USD 100) and depends on the blockchain you’re using and its current demand for block space. On Ethereum, the transaction fee required to use the network is referred to as the gas fee (or gas price). Ethereum’s native coin is ether (ETH) and transaction fees are paid using ETH.

Gas is used to pay for computational resources on the Ethereum blockchain. For example, gas is required to send ETH, to mint and buy non-fungible tokens (NFT), and to utilize Ethereum-based smart contracts and decentralized applications (dApps). For this reason, the amount of gas required to execute these functions is of interest to many network users. These gas fees vary depending on use case. Sending an ETH transaction is typically cheaper, while more complicated smart contract and dApp executions tend to be more costly. The price itself is defined by supply and demand for transactional capacity on the network at the time of execution.

When Are Gas Fees Lowest? Why Are Gas Fees So High Sometimes?

Generally, Ethereum gas fees tend to vary based on the day of the week and the time of the day, with weekends and specific off-peak hours consistently being cheaper. Gas fee calculators that track and approximate gas fees are a popular tool for calculating costs. Many wallets that cater to Ethereum users (such as MetaMask) have built-in calculators that will automatically set the gas fee for you. Otherwise, this gas fee must be manually set by the user. On Ethereum, gas fee trackers that follow the gas price in real-time are also used. This allows you to take a wait-and-see approach in order to search for the lowest gas fees.

Ethereum gas fees can continuously spike for days when network demand exceeds the bandwidth capacity of Ethereum. The heavy reliance on Ethereum in the ICO boom of 2017 and in the decentralized finance (DeFi) groundswell of 2020 (known as the “DeFi summer”) both fueled high levels of growth in the network’s gas fees. Other gas fee spikes have coincided with the popularity of NFT collecting and investing. For example, the launch of the famous NFT project CryptoKitties contributed to severe congestion in the Ethereum network. While such circumstances can be frustrating for many Ethereum users, these gas fee increases are designed to bring network demand back into supply-and-demand equilibrium.

Who Receives Gas Fees?

Gas fees go to those supporting and securing the Ethereum network. On Ethereum’s execution layer (formerly referred to as Ethereum 1.0), gas fee payouts go to Proof-of-Work (PoW) miners on the Ethereum protocol. On Ethereum’s consensus layer (formerly known as Ethereum 2.0), gas fees are distributed to those staking ETH to support this updated Proof-of-Stake (PoS) variation of Ethereum. The merging of Ethereum’s two layers is tentatively scheduled for the summer of 2022.

Gas Fee Denominations and Ether Transaction Fees

For ease of use and to simplify the calculation of transaction costs, gas fees typically aren’t calculated in ether (ETH). This is because one ETH equals one quintillion wei (one quintillion is a one followed by 18 zeros). For this reason, gas fees are most commonly denominated in gwei — which equates to one billion wei. While there are over ten different denomination names for various amounts of ETH, these three denominations are most commonly used. Let’s look at a written example of an identical amount using all three conventions:

• 0.000000054 ether

• 54 gwei

• 54,000,000,000 wei

For most users, relying on gwei as the base unit is the preferred means of tracking current gas fees. For this reason, you may see gas fee trackers and gas fee calculators referred to as gwei trackers and gwei calculators, respectively. As Ethereum gas fees have risen, so has the rise of Layer-2 solutions that lower gas fees by processing batches of transactions off-chain prior to settling them on the Ethereum mainnet. Examples of notable scaling solutions for Ethereum include dYDX, Loopring, Arbitrum, Immutable X, Polygon, Optimism, and Skale Network.

Gwei to Gas Fee Example

Since Ethereum’s London Hard Fork implementation on August 5, 2021, gas fees on the network have utilized a base fee and a tip fee — or priority fee. The base fee is the minimum price for gas and is determined algorithmically based on Ethereum block space demand. These base fees are then burnt to reduce the ETH circulating supply. Burning a coin or token permanently removes it from the total supply.

The tip fee is optional but is included to get your transaction processed more quickly when network congestion leads to a backlog of orders in Ethereum’s mempool, which refers to the remaining unprocessed transactions on the network at any given time. The higher the tip, the faster your transaction is processed. ETH transaction speeds are broken down into three categories:

• Fast: These transactions should be processed in under 30 seconds.

• Standard: A standard transaction should take less than five minutes to execute.

• Slow: For those who can wait up to 30 minutes and want to pay a cheaper gas fee, you can choose a slow transaction base gas fee.

Since Ethereum has a block time of around 13 seconds, a fast transaction is generally executed in the first or second block. To calculate your total fee, you multiply your base fee (and tip if you add one) by the maximum number of gas units you are willing to pay (also known as a gas unit limit or gas limit):

(Base Fee + Tip) * Gas Unit Limit = Total ETH Transaction Fee

Let’s break down how this works in practice. John Crypto wants to send Jane Blockchain 1.5 ETH. We’ll use 75 gwei as the base fee, add a 5 gwei tip, and say the gas limit is 30,000; let’s plug these numbers into our formula:

(75 gwei + 5 gwei) * 30,000 gwei = 2,400,000 gwei

When converted to ETH, this gwei transaction fee is equal to 0.0024 ETH. So John would need to spend 1.5024 ETH (transaction amount + transaction fee) in order to send Jane 1.5 ETH.

While variations in gas fees may be challenging for new Ethereum users to master, they are a boon for the security of the network. A primary reason that many blockchains maintain transaction fees is to prevent malicious actors from spamming the network, because the cost of attempting to do so can become too high to be profitable. Transaction fees also help reduce Ethereum smart contract and dApp code inefficiencies that might lower the speed and throughput of the network. Further, with the myriad updates rolled out through various Ethereum upgrades, the process of paying and setting gas fees has become much clearer and simpler.