A lot of newbies are always surprised at how much it can cost to send a transaction on the blockchain, particularly on Ethereum, where the fees have risen into the hundreds of dollars on more than one occasion. But why is this happening? Didn’t we move away from centralized banks to escape such outrageous costs?

Fees exist on all blockchains, but in this article we’ll mainly focus on Ethereum and take a look at what gas is — who pays it and who gets it — why it can be so high, and what you can do or look out for to keep fees low.

Cold, Hard Gas

If you have an individual wallet, whether an offline Ledger or a MetaMask, you have to pay gas to transact on the Ethereum Virtual Machine (EVM). The EVM still runs on the Proof of Work mechanism, which requires transaction validators to use significant computational power to verify your transaction and include it in a block to be added to the blockchain. Gas is a transaction fee that both reimburses the validators for their running costs and acts as an incentive to keep running their node. This applies to all blockchains and it is typically paid in the native token of the chain. The type of blockchain determines how fast blocks can be added and how many transactions can be included per block — this is typically represented by Transactions Per Second (TPS). As more people use the chain, throughout is limited by the time it takes to be included in a block i.e. a queue forms. As people see the wait time increasing they offer higher gas fees to persuade the validators to let them jump the queue.

In this way gas is a market mechanism that is also a proxy of supply and demand. As the absolute price of gas rises, this starts to become a big percentage of a retail investor’s trade, and even prices out some people from the market. Demand may then drop as validators get through the backlog and participants re-join the market. As you can see, this is pretty inefficient and disproportionately affects lower value portfolios.

Exchange is Gonna Come

If you mostly use a centralized exchange you won’t see anything called a gas fee. Instead you’ll pay an exchange fee, which might be fixed or relative depending on your transaction. They have a large pool of funds so they essentially batch people’s transactions together if they want to move coins around on chain and can optimise their gas by transacting at the right time with large amounts. You’ll pay a combined fee which covers effective gas cost plus the exchange fee, the sum of which may be cheaper than an individual transaction today (as a percentage) depending on your trading size. You’ll notice larger, fixed fees for when you want to withdraw from the exchange, because then there is an immediate gas fee required to record it on the blockchain. You can get an idea of different exchange fees here.

With centralized exchanges, the user has to compromise on the lack of decentralization and the inability to trade certain tokens. This can lead to users having multiple exchange accounts for different coins and the extra gas and admin headache to transact between them.

Gas Containment

With the arrival of DeFi, gas costs have risen significantly due to the exponential growth of volume locked in the system. The relatively gas-efficient centralized exchanges are starting to play a smaller role and network congestion is worst during a popular bull run. Imagine you’re stuck in traffic and you can take part in an auction to lift your car out of there to get you to your destination!

And it’s not only DeFi — the growth in NFT sales, and in particular NFTs as a fundamental building block of play-to-earn (P2E) gaming, has seen record gas prices. Minting some NFTs can result in the use of larger smart contracts which require more computational power and therefore comes with a higher gas price.

The simplest way to keep gas fees low at the moment is to check ETH gas station to see what the Safe Low price is and manually set your gas fee in your wallet e.g. MetaMask in the Advanced Settings — if you set it too low there’s a danger it will never go through. If it’s still too high you can also check which times and days of the week are busiest here: And for NFT marketplaces you can check gas prices here.

Other options include combining transactions and/or buying gas tokens when the price low and redeeming them when it is high, such as via the CHI gas token or via Gastoken.io. But to be honest these may only have limited value given the next generation of blockchain connectivity that is upon us. Let’s take a look at that now.

Chain Reaction

The Ethereum Virtual Machine can only process up to 25 TPS at the moment and there are other blockchains with higher throughputs (and lower fees!). To highlight two in particular:

  • Binance Smart Chain (BSC) has been doing more transactions than Ethereum since February 2021, and today is doing more than three times as many. It has a max TPS of ~160 and sub-dollar fees, with PancakeSwap being a popular alternative to UniSwap. However, BSC is less decentralized as significantly less validators are required to reach a consensus — hence why it’s also known as CZ chain.
  • Solana is the new kid on the block, currently running close to 2000 TPS, with a maximum planned capacity of 50,000–65,000 TPS. The fees are even lower at sub 1-cent! Migration and launch of popular apps on Solana is starting to happen and some big NFT projects are also going there.

Chains like EVM and Solana are looking at sharding to further increase TPS, but this won’t be enough on its own to scale sufficiently and keep gas fees down. That’s where Layer 2 and bridges join the party.

Shards, Layers, and Bridges

There are two major advances happening with blockchain scaling right now:

  1. Layer 2 blockchain solutions: that allow computation and data to be taken off-chain, but still rely on the security and decentralisation of the underlying ‘Layer 1’ blockchain
  2. Layer 1 blockchain communication: that allow any blockchain to talk regardless of it’s foundation

There are so many projects now working on Layer 2 solutions (such as rollups) and bridges to Layer 1 blockchains it’s hard to keep up. Decentralized exchanges operating on Layer 2, such as dydx, are suddenly able to offer all trading liquidity with a fraction of the fees.

You can check how low the L2 fees are here and understand more about the value locked in these L2 solutions here. One of the key things to be aware of is the lock-up time present with certain types of L2 rollup (“optimistic” rollups), meaning funds may not be available via the main L1 chain for several days (but for this inconvenience there are also several protocols springing up to counter this).

Concluding Remarks

Gas is a fact of life in crypto, a lubricant to grease the wheels of computation. But if you’re a frequent trader there are ways to keep it down. Remember to keep in mind:

  • The timing of your transaction matters and you should check what the safe low gas fee is
  • Other blockchains outside of Ethereum can be much cheaper if your desired tokens are available there
  • Decentralized exchanges on Layer 2 may compete with the low fees of Centralized exchanges, and come with the benefit of you keeping the crypto in your own wallet

Happy hunting.