Gas on Ethereum: The Essential Guide to Understanding Transaction Fees

Introduction to the ETH Gas Concept

Frequent operators on Ethereum inevitably encounter gas. This measurement unit represents the computational cost required to perform operations on the network. Every time you send a transaction, interact with a smart contract, or manage tokens, you consume gas and consequently pay a fee.

Gas is measured in gwei, a denomination equal to 0.000000001 ETH. For those unfamiliar with units of measurement, note that wei is the smallest unit of Ethereum, while gwei represents a billion wei. This naming structure allows for expressing fees in more manageable numbers.

How Ethereum Gas Fees Are Calculated

The August 2021 London upgrade revolutionized the fee system. The current formula is simple: units of gas consumed × (base fee + priority fee).

Base Fee: The Foundation of the System

Each Ethereum block contains a predetermined base fee set by the protocol. This represents the minimum price of gas required for a transaction to be included in a block. Contrary to what one might think, the base fee is calculated on the previous block, not the current one, providing users with greater predictability.

A key element is that the base fee is “burned” after each mined block, thus reducing the total ETH supply. To keep block sizes sustainable, the protocol stipulates that the base fee increases up to 12.5% per block when target size limits are exceeded.

Priority Fee: The Incentive for Validators

Before the London upgrade, miners received the entire transaction fee. With the new system, a priority fee (tip) has been introduced to incentivize validators to include your transaction in the next block. Without this tip, validators might find it profitable to mine empty blocks.

Under normal circumstances, a small tip is sufficient. However, if you want your transaction to have priority over others, you will need to increase this fee to compete with other transactions.

Max Fee: Your Spending Limit

When sending a transaction, you can set a maximum gas fee: the highest amount you are willing to pay. For the transaction to succeed, this fee must exceed the sum of the base fee and the tip. If the actual cost is lower than the set maximum, you will receive a refund of the difference.

Why Ethereum Fees Reach Such High Levels

Network congestion is the main factor behind astronomical gas prices. Ethereum has a limited capacity per block, and every operation—from simple token transfers to executing complex smart contracts—consumes precious space.

When transaction demand exceeds available space in blocks, users compete. To be included in the next block, many increase their tips, triggering a bidding war upward. Decentralized applications (dApp) with particularly complex logic consume even more gas, further amplifying the problem.

Another consideration: gas price is not the only parameter of expenditure. The final fee also depends on transaction complexity. A standard transaction costs about 21,000 units of gas, while more complex operations can consume many more.

Practical Strategies to Reduce Fees

Monitor Average Gas Trends

Before performing any operation, check the average gas price on platforms like Etherscan.io/gastracker. Setting the fee below the average results in longer wait times but significant savings. If urgency is needed, a higher fee speeds up the process. It’s not always necessary to pay the maximum available price.

Choose the Right Moment

Gas prices do not stay constant throughout the day. Transactions happen continuously, and network congestion varies. If the cost is too high at the moment, wait for a less busy period—generally, fees drop significantly during off-peak hours.

Carefully Check the Gas Limit

The gas limit is not the same as the gas fee. Reducing the limit does not lower the fee but prevents paying for unused resources. A typical transaction does not consume the entire estimated limit. However, be careful: if the limit is too low, the transaction will fail and you will still lose the fee.

Clearly Distinguish Between Gas and Transfer Amount

A devastating mistake is confusing the gas fee with the amount of ETH you are transferring. Since both are entered in transaction fields, entering an incorrect value in the gas field could be very costly. Before confirming any operation, review every detail carefully—the blockchain does not allow refunds for human errors.

Gas on Other Blockchains

Many other networks implement a fee mechanism similar to Ethereum’s, requiring the native token of the blockchain to pay fees. A notable exception is NEO, where gas operates as a token separate from the main currency, requiring specific payments in GAS rather than the network’s base currency.