How Gas Fees Work and How to Reduce Them

We, first, need to understand blockchain and how it works to know what gas fees are so we can reduce them. Blockchain can be thought of as a digital record that can be viewed globally by anyone. The blockchain keeps track of transactions, and once information is added, there is no going back and it is there for everyone to see. This functions by multiple computers sharing and agreeing to the same information rather than a single company holding and regulating the data.

Within a blockchain is, you guessed it, a block. This block holds a series of recent transactions and has a limit to how much it can hold—also known as the block size. Once the block has been filled, it then gets closed off/sealed and added to the blockchain. Each block individually holds a list of the transactions that are held inside, as well as a timestamp and a reference (hash) that tracks back to the last block. The reference is what makes changing anything in the blockchain nearly impossible and would break the chain to the block previous to it.This is why blockchain technology is secure and considered to be tamper-resistant.

While this is important to know, this is just a brief overview to help you get a better understanding of how gas fees fit into all of this. Each transaction in each of the blocks needs to be verified and is done so by miners. Those miners need to get paid somehow, so there are gas fees to fit in. We will discuss this more thoroughly in the article.

To understand gas fees and how they work, knowing what blockchain is and how it works on a deeper level is also important, so head over to our guide on What Is Blockchain and How Does It Work?. Since that is out of the way, let's get into what gas fees are, why they exist, and how they are calculated. Once we go over that, then we can learn how to reduce them.

What Gas Fees Are

First, let us go over what gas is, and then we can cover gas fees. To put it simply, gas measures the processing power needed for transactions. Each transaction computes a certain amount of gas, and validators (also known as miners) are needed to make the transactions occur. Gas fees are the transaction fees paid to blockchain validators.

These validators are necessary for processing transactions, executing smart contracts, and to help secure the network from spam. All of this together is needed due to blockchains having limited block space. To put it in short, gas fees are like “fuel costs” to use the blockchain—the larger the transaction, the larger the gas fee.

Gas fees are essential to the Ethereum blockchain and originate from Ethereum. They are known to fluctuate in price based on the network capacity, supply, and demand. The gas fees are priced in small amounts of cryptocurrency called Gwei, also known as Ether (ETH).

Why Do They Exist

By attaching costs, such as gas fees, to the transactions or smart contracts, it discourages malicious actors from overworking the network with spam such as low-value, junk transactions. Gas fees not only exist for this reason but to act as an incentive for validators to engage with the network's validation process using their Ether. Without it, no one would really care to contribute their ETH and help by securing the network.

Gas fees also exist to manage the network's resources. The blocks have individually limited space, so to be included, users bid using the fees. Just as mentioned earlier, there is limited space in a blockchain. Therefore, there has to be a way to keep each block within a certain limit.

Now that we understand what gas and gas fees are, let's go on to how the gas fees are calculated. Even though they can fluctuate, there is a general formula used to calculate what each gas fee will be and the factors going into it.

How Gas Fees Are Calculated

Each network can calculate their gas fees a little differently, but there are some terms that can get confusing when discussing the general calculation, so let's discuss those and how they play a role in all of this.

There are two main components that go into the calculation—the gas price and the gas limit. The gas price is the price per unit of computed work and basically the price you'll end up paying per unit of gas. The gas limit is the maximum amount of work estimated for the validator on a specific transaction—this is the maximum amount of work you are willing to pay for.

Gas fees use both the gas price and gas limit to produce the total transaction fee. The calculation will be:

(Gas price) × (Gas limit) = Transaction fee (gas fee)

Another component that is optional to users is the priority fee. This fee acts as a tip to validators and is added to the gas price. The name suggests it all: the higher the tip, the higher of a priority your transaction becomes to validators and essentially moves it up the queue. Moreover, if the user estimates a lower gas limit, the transaction will move down and become a lower priority.

Ethereum Gas Model

Since Ethereum is the originator, it is only a given that they are the most well-known model for other networks. They have three components that are involved with their gas fee: the base fee, the priority fee, and the max fee.

The base fee is set algorithmically by the network and swings depending on how congested the network is at the moment. This is also a fee that is burned from the transaction, meaning that it is removed permanently from circulation instead of going to the blockchain validators to create less pressure on the ETH supply.

Then there is the priority fee, which, as stated before, is optional but crucial to get your transaction higher in the queue. This is paid directly to the validators and acts as an incentive for them to include your transaction faster.

Lastly, there is the max fee. This fee acts as a cap for users and is the maximum you are willing to pay for a transaction or smart contract to be processed. The calculation for the gas fee for this widely used model is:

Gas used × (Base fee + Priority fee) = Actual gas fee

Ethereum uses this because during high usage, ETH is deflationary, causing a net decrease in supply. This also matters because users not only get predictable pricing, but since it is predictable, there is less fee manipulation occurring.

Keep in mind that every block on the Ethereum network has a base fee that is determined by the demand in the blockchain. The base fee is based on the block size of the block before it and compared against a target block size that represents a limit. So, if the size of the previous block exceeds the target block, the base fee for the next block will increase by 12.5%, which will then leave you with absolute certainty of the base fee for the next block. Your total gas fee has to meet this price as a minimum in order to be considered for inclusion in the block itself.

Effects on Gas Fees

Going back to earlier when we mentioned how the blockchain and blocks have limited space, there are other factors alongside limited space that affect the gas fees. Factors such as network congestion, the type of transaction and complexity, and user priority.

As mentioned earlier, congested networks with more users can result in fluctuation of the base fee, which can directly make the total fee swing up and down as well. Factors such as NFT mints, memecoin launches, and liquidations spike fees due to the influx of users.

The gas fee can also fluctuate due to the type of transaction you are wanting to complete and how complex it can be. For instance, a simple crypto transfer will have much lower gas fees than a smart contract since a smart contract is much more complex and takes a longer time to validate than a transfer.

User priority is another factor that can not only determine how quick your transaction is completed but can impact your gas fee. This is due to the obvious desire for a quicker transaction and getting to the front of the queue, so you pay more to be a priority through the priority fee.

How to Reduce Gas Fees

Many crypto users want to know how to avoid paying gas fees, but it is not that simple. Users are not able to avoid them altogether, but there are ways to reduce the cost of them and get the best bang for your buck. This section will list the ways and then individually discuss how they work.

Here is a list of ways to reduce gas fees:

• Timing your transactions

• Taking advantage of platform discounts

• Using Layer 2 solutions to your advantage

• Using low-cost networks to transact

Timing Your Transactions

As discussed previously in this article, when the blockchain is busy and the validators get backed up with transactions, the gas fees become more expensive not only due to the business but the priority fees people are using. By timing your transaction during low-use times, this helps ensure you are not paying high gas fees to get to the top of the queue and even higher priority fees to become first in queue.

Steps to time your transactions:

• Identify low-use times: Monitoring when the user activity drops is the most obvious way to time your transactions, and it is said that weekends and late at night are your best bet at times with the lowest gas fees.

• Tracking tools: Users are able to apply tools such as Etherscan Gas Tracker to monitor real-time gas fee prices for them. This not only helps in identifying the low-use times but also shows you the current gas price. Users can set priority alerts with the tools to help let them know when prices drop so they do not have to sit there and watch all day.

• Changing wallet settings: Some software wallets automatically set the gas fee too high, but users are able to change this feature to set non-emergent transactions to perform during low gas fee times instead of during regular high times.

Taking Advantage of Platform Discounts

Using the analogy of actual gas and prices, choosing the right gas station can help reduce the price. This also works when choosing the right wallet that offers incentives and even covers the costs of gas fees altogether. Certain wallets and platforms can pay the gas fee on your behalf, such as Coinbase Smart Wallet—they can automatically cover your gas fee for their members on specific networks. There are also some DeFi incentives that offer gas refunds or completely cover the fees depending on the transaction type.

Here is a list of wallets that commonly offer discounts and incentives:

• Trust Wallet

• D'Cent Wallet

• Token Pocket

Here is a list of networks these wallets offer their discounts for:

• Ethereum

• Base

• Solana

You can always look up if a certain dapp or protocol incentivizes lower gas fees for new users or for doing a specific action/transaction if you are unsure or just want to see what is offered to you.

Using Layer 2 Solutions to Your Advantage

Using Layer 2 (L2) instead of processing on the main blockchain (Layer 1—L1) can help lower the gas fees tremendously. This happens by batching many transactions at once on the L2 and submitting the compacted data to the L1. So instead of having multiple transactions in the L1 and having multiple gas fees, you create one transaction, causing one gas fee.

The L2 can combine hundreds or thousands of transactions at once to help with this, and processing it on the L2 is also faster and cheaper than doing so on the L1. This compressed data also reduces the data footprint in the block, so submitting compressed versions also helps to reduce the gas cost. All in all, offloading the heavy tasks from the L1 to the L2 and only using the L1 in the end and final decision makes for an affordable and structured system of using blockchain and their gas fees.

Using Lower-Cost Networks

As discussed earlier, there are ways to obtain discounts, but this section is different because some networks are simply cheaper to use. Each one serves different purposes, so let us go over each one to help find the best fit for you. While they are all good in their own ways, there are trade-offs for using each, so those will be listed as well as why they are cheap.

For micropayments/small transfers:

• Nano

  • Designed to not use validators or gas and uses a block-lattice system.

  • Trade-offs are that it is a much smaller ecosystem than most, with fewer apps.

• IOTA

  • This is not your traditional blockchain due to it being DAG-based.

  • The trade-off is that there is less activity in these networks with DeFi and NFTs.

For payments and high-volume usage:

• Solana

  • This network is cheap due to the high throughput and the parallel processing available.

  • The trade-off for using Solana is that there are occasional network congestions and sometimes even outages.

• Bitcoin Cash

  • This is an alternative to using Bitcoin and is cheaper due to the block sizing being much larger, so more transactions are able to fit on a block. Another reason is that it has a simple transaction model that makes this network optimized for peer-to-peer transactions.

  • The trade-offs for this are that there is weaker security than Bitcoin and lower decentralization due to not having as many miners to secure the network.

• Stellar

  • This is another network known for having cheap gas fees. This is due to there being optimization for payments and remittance. There is also no true mining involved, so this lowers the fees drastically.

  • A trade-off of using this network is that they offer limited complicated smart contracts and limit their capability.

Conclusion

To summarize what we have gone over in this article, gas fees are transaction fees paid to the miners that validate the transactions. Reducing gas fees can be simple or take a little more work but is achievable through timing your transactions right, using discounts and network incentives, and utilizing Layer 2 solutions. Certain blockchain networks offer lower gas prices, so make sure to research beforehand to find the lowest gas price and a network that fits your needs.

All of this matters to crypto casino users because they are the ones purchasing and selling crypto, and to get the most out of their money, reducing gas fees and understanding how they work allow gamblers to put more of that saved crypto into their spending at the crypto casinos.

FAQ

What are blockchain gas fees?

Gas is the measurement of the computational work that is required for transactions such as transfers and smart contracts. That means that gas fees are transactional fees placed on each transaction made in a blockchain network.

How can users avoid gas fees?

Gas fees cannot be directly avoided, as this is how validators are paid, but there are ways to reduce the price of gas fees, such as timing when your transactions occur, using network discounts, and utilizing Layer 2 solutions.

Why are ETH gas fees expensive?

Ethereum is known to be very secure, have high decentralization, and is the largest DeFi/NFT ecosystem available, so users pay for these factors. The prices of gas fees can also be higher due to congestion in the network.

Who pays the gas fee?

Sellers are the ones who pay the gas fees when accepting offers, where the buyers pay the gas fees when purchasing.

Which blockchain network has the lowest gas fee?

Choosing the lowest price for gas fees is not the exact same as choosing the cheapest gas station. Before finding the cheapest gas fee, you must first analyze the type of transaction you are completing and find the cheapest one based on your needs.

When are gas fees the cheapest?

Gas fees are usually lowest during the weekend in the middle of the night. This is due to low user volume and less congestion in the network.