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A Guide to Gas Transaction Fees in Cryptocurrency

gas fees

A short guide to gas in cryptocurrency, why it matters and how it works on the blockchain to help keep DeFi networks efficient 

Transaction Fees Stink! Or is it just gas?
A short guide to gas & why you need to pump it.

Hi, folks. Sherpa here once again with an article that poses the question: Can you pass on gas? The answer might surprise you! 

Spoiler alert: No. No, you cannot.

What is gas in cryptocurrency?

Put simply, gas is the fee that you pay miners in order to have your transactions processed. Generally speaking, it is denoted in relation to a fee-per-byte. With Bitcoin, bytes are the “weight” of the overall transaction.

Related: What is Bitcoin?

If you’re talking about Ethereum, the “weight” is usually more about how complex the smart contract is. For example, a basic Ethereum transfer from one address to another doesn’t cost much, regardless. It “weighs” very little. A fairly complex contract, like Uniswap or 1inch’s, weighs a lot more, and so a transaction costs more to execute – because it’s charged per byte, and this is more bytes.

Confused? I bet! Suffice it to say, the more a contract does the more it weighs (compounded by inefficiencies in the code), the more weight a transaction has, the more it will cost you. And the more activity there is on a network, the longer you’ll have to wait if you don’t want to pay a higher fee to push through.

This is true on any Proof-of-Work chain that I’m aware of, and on most other chains as well. Why? Because of cryptoeconomic security:

“Cryptoeconomics refers to the study of economic interaction in adversarial environments. The underlying challenge is that in decentralized P2P systems, that do not give control to any centralized party, one must assume that there will be bad actors looking to disrupt the system. 

“Cryptoeconomic approaches combine cryptography and economics to create robust decentralized P2P networks that thrive over time despite adversaries attempting to disrupt them. The cryptography underlying these systems is what makes the P2P communication within the networks secure, and the economics is what incentivizes all actors to contribute to the network so that it continues to develop over time.” (blockchainhub)

That was a bit of an oversimplification, but suffice it to say: a feeless transactional network that is decentralized is ripe for attacks by bad actors. I’m going to get some flack for this statement, for sure, but it’s still the truth. 

Related: Beginner’s Guide to Blockchain

In a network without consequences in the form of fees, any bored individual can spam the network with transactions, create clogs and bloat. And this is the internet—every individual is that bored. Or you should assume so, anyway.

Why are crypto gas fees high?

If you’re not talking about one of the large caps…it isn’t. Ethereum, specifically, is where you’re probably feeling the digital “pinch at the pump” the most.

The problem is that nothing scales well, and Ethereum was never meant to scale this fast without pivoting. Scaling while still satisfying the “Blockchain Trilemma” without sacrificing too much in any one area is hard.

How hard? Bitcoin hasn’t managed to do it, no matter what maxis tell you. They sacrifice speed for the benefit of decentralization and security. The Lightning Network/Liquid both give up something in order to reclaim the speed.

Additionally, Ethereum is a victim of its own success. The huge dapp explosion in 2017 and the DeFi boom of the past year have seen dapp use increase exponentially. This means more transactions on the network, and more people raising their gas fees in an effort to push through the clogs.

Related: 4 Blockchains to Watch in 2021

What is the solution for high gas fees?

Ideally, this would be solved by dapps migrating to Layer Two projects like Polygon, as we’ve discussed before, and mainnet essentially becoming a confirmation layer for the L2s. 

Ethereum 2.0 is something else entirely, and it remains to be seen if it will solve the scaling problem without sacrificing too much.

On this, especially, though—do your own research. This is my opinion, and although it’s a damn good one, don’t take my word for it.

Until next time, keep gas in your wallet and sats in your stack.

Related: 4 Crypto Projects to Watch on 2021


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