The definition that best captures the essence of gas fees is essentially that of a commission.
To be more specific, we refer in these cases to the cost required to conduct a transaction of various types on a blockchain platform, in this case Ethereum, with valid prospects of success.
Essentially, with a very small fraction of cryptocurrency, (ETH), which is identified in the jargon as gwei or nanoeth, gas fees are used to be able to allocate resources inherent in Ethereum’s own virtual machine otherwise known by the acronym EVM.
Through this mechanism, decentralized applications, such as smart contracts, can be executed automatically, but ensuring fully acceptable and traceable levels of security.
This mechanism affects all types of transactions, first and foremost those related to the purchase, sale and creation of NFTs.
What is gas (Ethereum)
The concept related to the gas fee related to the Ethereum blockchain was introduced in order to be able to keep the values related only to the computational expenses of the network distinct from all others.
This detail is not to be underestimated.
The possibility of having a detached unit for this purpose can in many cases allow for a more pronounced distinction between what is solely the actual valuation of the cryptocurrency under consideration, in this case Ethereum, and the computational cost of using the virtual machine attached to it, in this case EVM.
Hence the definition and nomenclature corresponding to gas fee.
Gas was thus intended to mean the transactional fee related to the Ethereum network.
In a nutshell, to understand the usefulness of the gas fee, one need only think of a fee that the user pays in order to compensate for the relative expenditure of energy, generated and consumed in multiple forms, necessary for the processing and validation of the various transactions executed and generated on the relevant platform.
The definition of gas limit in fact concerns the maximum amount of gas, in this case energy, that one is willing to spend on a specific transaction.
Corresponding to a higher gas fee limit there will be heavier transactions inherent in transactions through ETH or smart contracts.
Being the basis of transaction verification and processing, Ethereum mining systems, receive these important fees.
In this way, if the price of gas limit turns out to be too low, “miners” may choose to ignore the transactions in question.
That is why the gas fee price is constantly fluctuating with a trend based on supply and demand relative to processing power.
How Ethereum gas fees are calculated.
As a result of the London Upgrade, any block has a base fee, i.e., the minimum price corresponding to the unit of gas to be compulsorily paid within the block.
This is calculated by the network itself based on the demand ratio for that specific block.
There is, however, an additional factor to consider in the count under consideration.
The presence, in fact, of a base fee inherent in the transaction fee being burned.
For this, users must set an additional so-called tip or priority fee for their transactions.
This priority fee is intended to compensate the miners who perform the propagation of the various user-generated transactions within the reference blocks, the tip is after all set up automatically in most wallets.
Turning instead to the more practical discussion of the calculation of gas fees within this system, it is necessary to place a basic calculation on which the entire block is based.
The calculation of the fee related to each individual transaction is the result of multiplying the gas units (or gas limit) by the sum of Base fee and Tip.
An example will be useful for better understanding.
A user X needs to execute a transaction to another user, Y, of 1 ETH.
Within the transaction, the gas limit is calculated as 21,000 units while the base fee calculated in gwei will be 100 gwei.
For this transaction, user X must include a “tip” of 10 gwei in the payment.
According to the formula previously used, 21,000 units must be multiplied by the sum of the base commission and the tip.
Thus: 21,000 * (100+10) returning a total of 2310,000 gwei corresponding to 0.00231 ETH.
In this mechanism, user X sends 1 ETH while 1, 00231 ETH will be withdrawn from his wallet of which, 1 ETH will be sent to user Y while 0.00231 ETH will be sent to ETH miners while the base fee of 0.0021 will be burned.
Within this dynamic, a maximum fee called maxFeePerGas can be set for those executing the transaction.
In this case, however, the difference between the maximum rate and the rate actually charged will be refunded to the user via refund.
The refund will then be equal to the difference between max fee and the sum of base fee and priority fee.
In this case, user X will be able to set a maximum amount of ETH to pay in order to execute each transaction securely and without the fear of paying more than the actual base fee.
Why Ethereum gas fees are so expensive
To better understand why Ethereum gas fees are characterized by such a considerable cost, it is useful to understand how they are calculated.
The factors behind the calculation relate primarily to Ethereum.
The main reason why ETH gas fees cost so much is, very trivially, related to the cost of Ethereum itself.
It should not be forgotten that gas fees, although denominated gwei, remain an Ethereum coin, albeit a very low amount.
What, unfortunately in some respects, is pushing the price of gas fees higher and higher is the strong pull caused by both the NFT world, first and foremost, and decentralized finance in general.
The more users come into this world the more there is a need for computing power and energy to power the various miners.
Another reason why the cost of gas fees is so high has to do with the dynamic way in which they are calculated.
The fees are based on the amount of gas required for each transaction.
That is why as the relative number of transactions has increased, these markets have seen a steady rise in the cost of fees.
Indeed, one must consider that on the Ethereum blockchain alone there are more than 3000 decentralized applications or Dapps.
Dapps represent over 100000 active users who perform over 250000 transactions per day.
The gradual development of Ethereum has affected the volatility of gas fees.
The EIP 1559 update was, in fact, intended to make the calculation of base fees more consistent by basing it on the previous transaction.
How to save on gas fees
We have recognized how the cost of gas fees is essentially based on a volatile and variable calculation.
In fact, the variables are the transactions themselves that a blockchain includes in a given time frame.
This is why logically the cost goes up when more computing power and energy is required, and this happens when several transactions coexist at the same time.
According to this reasoning if you can pick the right time you could generate much lower gas fee related costs.
If you have the goal of minimizing this cost, the first secret is to conduct your transaction at the time when the number of people who are using the blockchain is minimal.
After some time, it has become apparent that in general the blockchain is inevitably characterized by ups and downs in terms of what transactions are made.
That is why, with a good approximation rate, it is possible to save not a little if you make your transaction on the weekend.
The second way to reduce transaction-related costs is logically to reduce tipping or priority commissions.
In this case, a tip to make a transaction faster when that benefits no one is essentially useless.
If time is not an influential factor for that transaction there is no point in giving away a higher tip.
The third way to save money is to set a cap on all fees because if there is a difference between fees, Ethereum refunds the unused change.
The future of Ethereum
When talking about the future, one cannot transcend from talking about upgrades, and in the world of blockchain more specifically about algorithms.
Speaking of future developments, one must have a clear view of the current status in mind regarding possible future developments.
At present, as a key word, it is unquestionable to think of Proof-of-work.
This is the algorithm behind transactions in cryptocurrencies such as Bitcoin and Ethereum.
Ethereum is a blockchain with a ledger containing the history of every transaction that has taken place; the blockchain consists of blocks containing the last recorded transactions.
The so-called proof of work is required to add new blocks called up precisely by miners.
Each time a miner submits a proof of work the blockchain accepts an additional block.
This mechanism prevents users from “printing extra coins” in order to protect the cryptocurrency from sharp drops in value.
The problems with this algorithm relate firstly to the high power consumption required, then there is the probability of attacks at 51 percent-if an entity were able to reach 51 percent of the total hashrate, it could violate the rules even temporarily and double the coin spend consequently blocking every transaction.
Speaking of future developments, Ethereum plans to move to another method called proof-of-stake. In fact, proof-of-stake implementation is characterizing Ethereum 2.0.
In this new mechanism, so-called validators are in charge of selecting successive blocks by binding part of their ETH.
Blocks are assigned if a new block is attested as accurate and if the block is acquired.
In case of violations, such as attesting to a block containing a fake transaction, the validators are banned from the network.
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