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Ethereum has become one of the most popular cryptocurrencies and blockchain platforms in recent years. However, one aspect of Ethereum that often confuses new users is gas fees. In this beginner's guide, we will explain Ethereum gas and gas fees in simple terms.

Ethereum gas fees refer to the fee, or pricing value, required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform.

In order to perform any action on the Ethereum network, you need to pay a certain amount of "gas". Gas is priced in small fractions of the cryptocurrency Ether (ETH). The amount of gas required depends on the complexity of the action you want to take. Simple transactions like sending ETH from one wallet to another require less gas than executing a smart contract.

Gas fees are paid to Ethereum miners as an incentive for them to add your transaction to the blockchain. The miners have to expend computing energy (literally spend gas) to process and validate your transaction. So the gas fee compensates them for that work. The more complex the action, the more gas it requires, and the higher the fee.

Ethereum gas fees exist to prevent network spamming and abuse. Without gas fees, users could execute an infinite number of transactions and slow down the network. Gas fees ensure that people use the Ethereum blockchain responsibly and minimize unnecessary transactions.

Gas fees also help determine the priority of transactions. Users can set a gas price they are willing to pay for each transaction. Miners will prioritize transactions with a higher gas price. During times of network congestion, setting a higher gas price can help get your transaction processed faster.

Finally, gas fees act as a critical anti-DDoS measure. If transactions were free or extremely low cost, malicious actors could generate a flood of requests to disrupt the normal functioning of the Ethereum network. Gas fees discourage such DDoS attacks by imposing a real financial cost on the attacker.

Ethereum gas fees are calculated based on two factors:

Gas Price is set by you, the user. The Gas Limit is determined by how complex the transaction is. For simple transactions, the gas limit might be 21,000 units. For a complex smart contract function, it might be 200,000 units or more.

To calculate the maximum total gas fee for a transaction:

Gas Fee = Gas Price x Gas Limit

For example:

So the maximum you would pay for this transaction is 0.001 ETH. The actual fee may end up lower than the maximum depending on the actual gas used.

Here are some tips to reduce the amount you pay in Ethereum gas fees:

As an Ethereum user, having a clear understanding of gas and gas fees enables you to optimize your transaction costs. You can avoid overpaying and prevent failed transactions due to incorrect gas settings. As Ethereum advances, gas mechanics may evolve. But the core principles will likely remain valid for the foreseeable future. Mastering gas is a key step to level up your Ethereum knowledge.

Now that we have covered the basics of Ethereum gas and fees, you may be wondering...

Ethereum gas prices and fees have varied widely over time. Here are some key stats on historical gas costs:

In periods of high network congestion, like during the height of the 2021 NFT boom, gas fees spiked dramatically. This pricing is driven by demand and supply economics. When demand is high, fees naturally rise as users compete to get their transactions processed faster.

However, even during calmer periods, Ethereum gas fees remain high compared to other blockchains. For example, a typical Ethereum transaction fee is rarely below $10, while Bitcoin fees can be under $1. This is due to Ethereum's unique architecture and extensive smart contract functionality.

To significantly improve scalability and reduce gas costs over the long term, Ethereum is transitioning to a "Proof of Stake" consensus model via the Ethereum 2.0 upgrade. This will allow sharding, parallel processing of transactions via sidechains attached to the main Ethereum blockchain.

In addition, Layer 2 scaling solutions like rollups and state channels will take pressure off the main chain and provide order-of-magnitude gas discounts for users. Plasma sidechains are another scaling approach in active development.

For the average user, Layer 2 solutions integrated into consumer products will be the most convenient way to enjoy low gas fees while retaining Ethereum's security. So watch for exchanges, wallets, NFT platforms and more launching Layer 2 access over the coming years.

Ethereum gas fees are generally higher than competing smart contract platforms like Binance Smart Chain, Polygon, Solana etc. Here's a quick comparison of average transaction fees:

However, Ethereum offsets higher fees with greater decentralization, censorship-resistance, dev community and security. As scaling solutions launch, Ethereum will aim to match the low fees of competitors while retaining its unique value proposition.

For new users eager to explore Ethereum, constantly waiting for lower gas is not ideal. Ethereum fees are a complex, ever-changing landscape. But fortunately as a beginner, you can enjoy most of what Ethereum offers without exorbitant fees.

Here are some tips to use Ethereum smoothly even when gas prices are high:

While gas fees are still a pain point, they should not scare you away from the amazing world of Ethereum and Web3. With the right strategies, you can dip your toes in for free and have tons of fun learning.

The rest is here:

Ethereum Gas Fees Explained Simply for Beginners - BTC Peers