With over 18,000 cryptocurrencies now on the market, it’s safe to say that the advent of Bitcoin (BTC) has inspired many to follow in its footsteps. One of the most successful to do so is the number two crypto in terms of market capitalization: Ethereum (ETH).
Ethereum, in many ways, is very different from Bitcoin. It’s more of a platform that developers can build upon compared to Bitcoin—which is a mode of payment that offers cheaper and quicker transactions, efficient remittances, wealth preservation, and more.
One major difference between the two is Ethereum’s use of a gas system, which Bitcoin doesn’t have. Before we get into how to reduce your gas fees, let’s first go over what this system is and how it works.
Gas fees explained
Similar to how fuel allows a car to run, Ethereum gas lets people use the network for transactions, decentralized applications, and more. It’s a fundamental cog in the ETH system and a unit of measurement that tracks how much it’ll cost to execute a specific action on the network (sending ETH, minting an NFT, trading a DeFi token, etc.).
Gas is computed in gwei, which amounts to 0.000000001 ETH. The gas limit, on the other hand, is the ceiling for how much gas can be spent on an ETH block. Currently, the gas limit is set at 15 million units.
So if someone said that “gas fees are at 50 right now,” it means that to make an Ethereum transaction, it would cost 50 gwei. To calculate how much it would actually cost, you can use this formula:
Gas limit x gas price (in gwei) x 0.000000001
Basic ETH transfers will usually have a gas limit of around 21,000. In that scenario, we can input the formula for the total cost of the transaction:
21,000 (gas limit) x 50 gwei x 0.000000001 ETH
This would then equal a gas fee of 0.00105 ETH—which is how much you’d have to pay on top of the ETH transfer. At the time of writing (March 29, 2022), that would cost you around 3.58 USD.
Why gas gets expensive
More often than not, these gas prices can increase rapidly depending on a variety of factors. One of the main reasons it gets so expensive is due to how many people are using the network. The more people use it, the more clogged the network becomes—resulting in higher gas fees. Additionally, there’s a priority system that lets people pay more to have their transactions prioritized. This creates a competitive nature that can often result in higher fees.
Because of DeFi and NFTs rising in popularity, block space in Ethereum has, in turn, increased in demand. This means that they’re getting more valuable and as a result, gas prices have increased.
Ways to reduce gas fees
If you’re looking to pay less on Ethereum gas, here are a few ways to reduce the cost of gas prices:
🕒 Timing your trades
Depending on how important your transactions are, you can always set them to times when gas prices are lower. This then begs the question: when are ETH gas prices lowest? On average, gas prices will be higher during the 5-day work week, so if you time your transactions for Saturdays or Sundays, you can generally expect to pay less on fees.
🪙 Gas tokens
Minting gas tokens when gas prices are low and then redeeming them when they spike is one way to reduce your fees. Doing so will net you a refund in ETH to help cover your gas expenses. This solution mainly works because of Ethereum’s storage refund system, which basically reimburses users that delete storage variables.
📈 Explore scaling solutions
With these rising gas prices, it’s normal for developers to look for new solutions to make transactions more efficient for everyone. This includes layer two options that use the Optimistic rollups—solutions that work similarly to Bitcoin’s Lightning Network. There are a couple of these solutions already being developed, although there aren’t many options yet as of the time of writing.
💾 Dapps that minimize gas
Built on top of the Ethereum blockchain, some Dapps (decentralized applications) can provide products that will help you minimize gas. Examples include Dapps which will automate and batch your transactions so that you pay for them all at once instead of one by one—saving you money in the long run.
Despite the growing concern surrounding Ethereum gas, many believe that it isn’t a permanent problem. Developers are getting to work on possible solutions and although it may be a while before we see significant improvements on the system, we at least know they’re on the way.
Before you buy Ethereum, it’s important to know that it’s a much younger currency than Bitcoin (which is still considered to be in its infancy stages) and that means it’s still working out the kinks as it experiences growing pains. If you’re an avid ETH user and are getting frustrated with the rising gas prices, it might be a good idea to step back for a little bit and look to more tried-and-tested alternatives like Bitcoin—which has already developed many real-use cases and is experiencing a rise in adoption.
Related: 3 Safety Reminders Before Buying Online Gift Cards Using Bitcoin