If you have ever used ETH to conduct transactions, you certainly came across such a concept as “gas fees”. Unfortunately, many users are still in the dark about what a gas fee is. Therefore, we suggest you study this topic in detail, understand what you are paying for and to whom, and find out how to reduce gas fees.
- Every transaction on the Ethereum network is subject to a gas fee.
- The amount of gas fees depends on the type of transaction, network congestion, and priority.
- You can significantly reduce gas fees by using the “Balances” feature.
What exactly are gas fees?
Gas is a unit of Ether (Ethereum) that serves to pay for transactions in the Ethereum blockchain. In other words, this is the price you pay for a transaction in a blockchain. As it is known, to date, Ethereum still utilizes the Proof of Work consensus algorithm. Hundreds of thousands of miners around the world are responsible for the security and management of the network. Miners are rewarded for validating transactions on the network. So, in simple words, you pay gas fees to miners.
The gas fee is not calculated from the transaction amount. For example, if you want to send 2 ETH to someone and the gas fee is, for example, 1 ETH. Then the amount that will be withdrawn from your wallet will be 3 ETH. This amount is removed automatically. If you do not have enough funds to pay for gas fees, the transaction will not occur due to the “Out of Gas” error. It is essential to understand that the amount you tried to send will not be taken from your wallet, but you will still have to pay the gas fee, even in case of a failed transaction.
What affects the price of gas
Depending on the network congestion, the user will pay a larger or smaller gas fee. You can track gas charges using the Gas Tracker service from Etherscan or ETH Gas Station. The services analyze network congestion and determine the amount of gas depending on the desired transaction speed.
In addition, the main reason for the high gas is the priority. For example, suppose a user wants to send some amount on the Ethereum network, and the transaction speed is not particularly important to him. In that case, he will pay less gas fee than the one for whom the transaction speed is a priority.
Imagine you want to send some ETH to your friend, but at the same time, someone makes a transaction on the Uniswap exchange. Both of you pay gas fees, and both of you want your transaction to proceed as fast as possible. But since the Ethereum network is not limitless, only a certain number of transactions can be included in the block. So, the miner selects the transaction which will be added to the block. Naturally, the miner wants to earn more, so he chooses the transaction where users pay higher gas fees.
How is the gas price calculated?
The gas fee consists of Gas Limit and Gas Price:
- Gas price. Like kilowatts in electricity, the gas is calculated in GWEI. One GWEI is 0.000000001 ETH.
- Gas limit. This is the maximum amount of gas that the user is willing to pay for executing a certain transaction.
To perform a simple transaction, for example, sending ETH from one address to another, a gas limit of 21,000 units is usually enough.
Further, the final price for gas collection will depend on the network congestion. For example, when the article was written, the gas price for the standard speed of a simple transaction was 30 GWEI; for a fast speed, users had to pay 37 GWEI.
So, if you want to send 1 ETH to someone at a standard speed:
Gas Limit * Gas Price (units) = Gas Fee.
21,000 * 30 = 630,000 GWEI
630,000 GWEI is equal to 0.00063 ETH. At the time of writing, one ETH coin is worth $3,443. Thus, the fee for a standard transaction will be $2.16. That is, an amount of 1,00063 ETH will be debited from your wallet.
Naturally, to perform smart contracts transactions, the user pays more gas fees.
In addition, it is necessary to mention the London Hard Fork in this path. The London Hard Fork occurred on August 5, 2021, and included five improvements concerning the Ethereum network. The improvement of EIP-1559 was aimed at making the gas collection mechanism more transparent and honest. EIP-1559 contains two main elements:
- Basic fee.
This is the minimum fee that is paid to perform a particular transaction. Depending on the block, one or another amount of base fee is charged. You can read more about this issue on the official Ethereum page.
- Miner Tip.
This fee is paid at will and goes to the miners. In the same scheme, you pay miners more if you want your transaction to take less time.
In this case, the gas fee is calculated using a slightly different formula, but the essence remains approximately the same:
Gas Limit * (Base fee + Miner Tip) = Gas Fee
Let’s give the same example when you want to send 1 ETH to someone. We already know that for a transaction of this type, 21,000 Gas Limit (units) will be enough, and the base fee at the time of sending will be, for example, 100 GWEI. In addition, you have decided to pay 20 Miner Tip to speed up the transaction. Thus:
21,000 * (100 + 20) = 2,520,000 GWEI
That is, you will pay a gas fee of 0.00252 ETH.
With this update, gas fees become more predictable and transparent, but not lower. In addition, the final amount of the fee depends on which Tip you have set.
Moreover, both types of transactions are supported today. Transactions of the old type are displayed as Type 0, while transactions of the new type are displayed as Type 2.
How to set up gas fees yourself?
Some wallets allow you to set the amount of gas manually, for example, MetaMask. Let’s give an example. You want to transfer a certain amount of ETH between wallets: fill in all the necessary fields, and receive a Receipt that specifies the Estimated Fas Fee:
Above the “Estimated gas fee”, you can see the “EDIT” button, clicking on which another window pops up in which three types of speed will be available to you, from low to high (the higher the fee, the faster the speed):
Clicking on the “Advanced Options” button will automatically pop up a third window where you can see the Gas Limit and Gas Price. As we have already said, the Gas Limit is set depending on the type of transaction, in this case, we have a simple transaction, so the Gas Limit is 21,000. You can change other indicators at your discretion, relying on the services listed earlier, such as Ethereum Gas Tracker, ETH Gas Station, or Gas Now.
Tips for saving gas fees
While all Ethereum users are frozen in anticipation of Ethereum 2.0, or rather the subsequent introduction of sharding technology, which will speed up transactions and reduce gas fees, let’s talk about how to minimize gas fees right now.
Choose the appropriate time for the transaction
Just as the price of ETH is volatile, so are gas fees in its network. The size of the gas fee directly depends on the network congestion, that is, more requests — higher gas fees. Usually, the gas fee in the Ethereum network is much lower on weekends and higher on weekdays. You can also use various services to monitor the gas price in your time zone, for example, EthereumPrice.org.
Don’t overpay for speed
Why pay more if you don’t really care how long your transaction takes? You can choose the size of the gas fee depending on your priorities. When setting the amount of gas manually, make sure that you have a sufficient balance to pay the fee; otherwise, although the funds will not be debited in case of a failure, the gas fee will be taken anyway.
Use the Layer 2 scaling solutions
Scaling solutions are designed to solve the pressing problems of the Ethereum network, namely high gas fees and slow transactions. So why not take advantage of the blessings of civilization? There are various scaling solutions on the market today that utilize multiple technologies: sidechains, optimistic roll-ups, and others. The most popular are Polygon, Optimism, and Arbitrum.
Batch multiple transactions into one
NOWPayments kindly provides its customers with a partially custodial solution to save your money. The bottom line is simple: you need to pay a gas fee for each transaction, but with NOWPayments, you can use the “Balances” feature. Thus, all your payments are stored on your Account, and upon request, you can withdraw funds in one transaction to your wallet. One transaction — one gas fee payment, many transactions — many gas fee payments. And if this transaction is also made at an unloaded time, then the amount of gas collection becomes minimal.
How to pay Ethereum with minimal fees
Unfortunately, as mentioned earlier, users are required to pay a gas fee for each transaction on the Ethereum network. But the good news is that with NOWPayments, you can reduce the number of your transactions, thus reducing gas fees. We provide our customers with the “Balances” feature, which they can activate at will. By enabling this function, you can store your cryptocurrency on your Balance and withdraw it in one transaction when you need it.
In order to enable Balances for your account, you need to fill in the “Balances Form”. In addition, using your registered email, you will need to send the code phrase “Please activate the Balances for my account” to [email protected].
In order to withdraw the cryptocurrency stored on the Balance, you need to navigate to the “Balances” section in your personal account and request withdrawal of funds. Then, the funds will be instantly sent to your whitelisted wallet.