A Bit More About Gas Fees
If you have read our Brief Introduction to NFTs and Brief Guide to Buying Cryptocurrency, you will have seen that the transactions discussed in these usually incur a fee, often known as a gas fee. In fact, the term ‘gas fee’ is really only applicable to charges on the Ethereum or Polygon blockchains, although it is common for people to refer to transaction fees on other blockchains in this way too. These fees are simply the price of using a blockchain network. They are paid to the people who operate the blockchain’s nodes – that is the people whose computers validate the transactions, as discussed in our article A Bit More About Blockchain. They keep the blockchain running smoothly, incentivising the validators and compensating them for the expenses incurred in their work.
When trading cryptocurrency or NFTs, you will notice that gas fees fluctuate a lot. They are highest during busy times, because the prices are pushed up due to the high demand. If you find that the fees are higher than you want to pay, consider trying the transaction again later.
Blockchain developers are currently working on ways to make the technology more efficient and cost-effective. One approach to this has been the development of ‘Layer 2’ solutions. These are blockchains that are connected to and run in parallel with the main blockchains. They help ease congestion in the network by extending it, allowing more transactions to take place simultaneously, thus reducing costs. Examples include Lighting Network and Liquid, which are Layer 2s for Bitcoin, and Arbitrum and Plasma, which are Layer 2s for Ethereum.
A reminder of some of the terms used in this article:
- Bitcoin – the cryptocurrency of the first blockchain
- Blockchain – a decentralised online record of transactions in cryptocurrency
- Cryptocurrency – a decentralised digital currency
- Ethereum – the most common blockchain with which NFTs are created
- Gas fee – a small charge for a blockchain transaction, such as trading cryptocurrency or minting an NFT
- Layer 2 – blockchain extensions that help to ease congestion at busy times
- Node – one of the computers in a network that operates a blockchain
- NFT (non-fungible token) – a technology that allows people to own and trade digital items, such as digital art