Every blockchain transaction incurs fees, but why do Ethereum gas fees fluctuate so much? Learn more about how gas fees work, why they spike during network congestion, and how to reduce gas costs.
Cryptocurrency transactions come with a cost, often referred to as transaction fees or, in the case of Ethereum, “gas” fees.
Blockchain users pay fees to compensate validators for processing and securing transactions. While they are essential for network functionality, fees can sometimes be costly, particularly gas fees on the Ethereum blockchain. However, over time, traders and blockchain users have developed practical tactics to help reduce their gas costs.
What Are Gas Fees?
Gas fees are payments required to execute transactions on Ethereum. These payments compensate Ethereum validators for processing transactions and participating in network security.
Ethereum gas fees are denominated in gwei, a fractional unit of ETH. Costs fluctuate based on network demand, such that when many users are transacting simultaneously, fees increase as demand for block space rises relative to the fixed supply. Conversely, during off-peak periods, fees tend to be lower when block space is more freely available.
How Do Gas Fees Work?
Gas refers to the amount of computational power it takes to execute a transaction. Ethereum’s core developers designed the gas fee model so that the transaction fee would be determined using a fair method that’s not directly linked to the volatile price of ETH itself.
As such, the gas fee paid is calculated based on two variables: gas price and gas limit. Gas price refers to the cost per unit of gas, measured in gwei. The gas price at any moment is determined based on block space supply and demand. However, within a margin, users can adjust the gas price they are willing to pay – higher prices lead to faster processing, while lower prices may result in delayed transactions.
The gas limit represents the maximum amount of computational effort a transaction can consume. Some actions, like sending ETH, require less gas than complex operations such as executing smart contracts or interacting with decentralized applications (dapps). If a transaction runs out of gas before completion, it fails, but the spent gas is not refunded.
In 2021, Ethereum upgrade EIP-1559, introduced a “base fee” that fluctuates based on network demand. Users can also add a “priority fee” (similar to a tip) to incentivize validators to process their transactions more quickly. If a block is more than 50% full, the base fee increases, and if it is less than 50% full, the base fee decreases. While EIP-1559 improved fee predictability, Ethereum fees remain disproportionately high compared to competitor platforms.
How to Minimize Crypto Gas Fees
Gas fees can add up, especially for frequent traders and dapp users. Here are five strategies to help you reduce your costs:
1. Know Your Gas Fee Costs Up Front
One of the best ways to manage crypto gas fees is by estimating them beforehand. Platforms such as Etherscan’s Gas Tracker or GasNow provide real-time gas price estimates. By checking these sources before making a transaction, you can adjust your gas price settings to avoid overpaying.
Some crypto wallets, including MetaMask, also offer built-in gas fee estimations, allowing users to choose between different transaction speeds with corresponding costs.
2. Time Your Transactions
Since gas fees fluctuate based on network congestion, choosing the right time to transact can lead to significant savings for regular users. Ethereum’s network tends to be busiest during business hours in the U.S. and Europe, when dapp usage and trading volumes are high.
By contrast, late-night and early-morning hours (UTC time) typically see lower activity, resulting in reduced crypto gas fees. Tracking daily gas price trends can help you determine the optimal time to transact. Some gas tracker websites even offer historical fee data to identify patterns.
3. Take Advantage of Platform Discounts
Certain DeFi platforms offer gas fee reimbursement or fee discount programs to attract users. For example, Balancer provides refunds on gas fees in its native token when trading on its platform. Similarly, dYdX and other DeFi protocols have previously run promotions that reduce or eliminate gas fees for specific transactions.
Before executing trades or interacting with DeFi platforms, research whether they offer gas incentives. Some projects may also cover gas costs for new users to encourage take-up.
4. Leverage Layer 2 Solutions
Ethereum’s Layer 2 (L2) scaling solutions offer a cost-effective alternative to transacting on the base layer. L2 platforms, such as Arbitrum, Optimism, and zkSync, bundle multiple transactions together before submitting them to Ethereum’s mainnet, significantly reducing fees.
By using L2 solutions, it’s possible to interact with Ethereum dApps with lower gas costs. Many DeFi platforms now support L2 networks, making it easier to transact on-chain at a fraction of the usual cost.
5. Transact on Lower-Cost Networks
If you’re looking for even lower fees, consider using alternative blockchains such as Solana, Avalanche, or Sui. These networks offer faster transactions with significantly reduced costs compared to Ethereum.
For instance, Solana transactions typically cost a fraction of a cent, making it an appealing option for frequent traders and NFT enthusiasts. While Ethereum remains the most popular smart contract platform, exploring other networks can be beneficial if you prioritize lower costs.
Crypto gas fee essentials
- Transaction fees are part of a blockchain’s economic incentive mechanism, compensating validators and helping to secure the network.
- Ethereum transaction fees, or gas fees, can be expensive due to high demand and limited block space.
- It’s possible to minimize crypto gas fees through tactics such as using gas fee trackers, timing transactions for low congestion, taking advantage of discounts, and using Layer 2 solution