One of the most common fees in the crypto space is known as “gas.” In this guide, we will explore what gas is and why it is prevalent in the crypto industry.
Cryptocurrencies operate within vast blockchains comprising various components. To ensure the functioning of these blockchains, miners or stakers play a crucial role in confirming transactions, depending on the protocols employed. As these miners consume substantial electricity and stakers lock their tokens for transaction confirmation, they receive a percentage of the transactions as fees for their work. One of the most common fees in the crypto space is known as “gas.” In this guide, we will explore what gas is and why it is prevalent in the crypto industry.
Defining gas
Ethereum, the world’s largest and most widely used blockchain, witnesses a high volume of transactions per second due to its popularity. Similar to major currencies like USD or EUR in the Forex market, Ethereum requires users to pay fees referred to as “gas” for these transactions.
From a technical standpoint, gas represents the computational effort required to execute transactions or any other operation on the Ethereum network.
Gas fee calculation underwent a change after the London update in August 2021. Previously, gas fees were based on the gas price per unit. However, after the London update, gas fees transitioned to base fees, resulting in a very slight decrease in overall gas fees.
The impact of the Ethereum “Merge” on gas prices
Many cryptocurrency enthusiasts are familiar with the notion that Ethereum gas prices being notably expensive, particularly during periods of high network activity. This was predominantly attributed to the proof-of-work protocol employed by the Ethereum blockchain, which was deemed slow and costly. With the introduction of the Ethereum Merge and the transition to the proof-of-stake protocol, expectations arose that Ethereum transactions would become faster and more affordable.
However, as the Merge unfolded and developer comments surfaced, those anticipating faster and cheaper Ethereum transactions realized this was not the case. Ethereum’s founders made significant statements on this matter, clarifying that the primary goal of the update was to make Ethereum 99% energy efficient. However, this did not equate to an expansion of the blockchain, resulting in negligible changes. Although Ethereum transactions are somewhat faster and cheaper post-Merge, they remain considerably more expensive than similar networks. So, conducting transactions on the Ethereum network still incurs high gas fees.
FAQs on gas in crypto
Is gas exclusive to Ethereum?
While “gas” is unique to Ethereum, other blockchains also impose fees. Gas serves as the unit of measurement for determining fees on the Ethereum network, while other blockchains and networks may refer to them simply as “fees” or by other names.
Have gas prices decreased following the Ethereum Merge?
No, gas prices remain high even after the Merge. Speculation prior to the Merge suggested a significant reduction in gas prices. However, Ethereum developers clarified that the primary objective of the update was to achieve a 99% reduction in electricity consumption. The update did not include the expansion of the Ethereum network or any modifications that would drastically lower transaction fees. Although the transition to proof-of-stake had some impact, gas fees are still relatively high compared to other networks.
