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What are Ethereum (ETH) Gas Fees?

Every transaction on the Ethereum network incurs fees – the so-called ETH gas fees. They cover the computational power needed for transactions and smart contracts. But why do these fees vary so much? The costs depend on network congestion and individual settings. If you understand ETH gas, you can optimise fees and trade more cheaply. Our guide explains how Ethereum gas fees work, how they’re calculated and which strategies help reduce costs.

ETH gas fees are the fuel of the Ethereum network and ensure the processing of transactions and smart contracts.
The fees are based on gas limit and gas price, expressed in Gwei – a subunit of Wei, named after Wei Dai, the inventor of B-Money (a precursor to Bitcoin).
EIP-1559, an upgrade inspired by auctions, introduces a base fee that is burned, along with a priority fee to incentivise faster processing.
Alternative networks like BTC or blockchains with lower fees (such as Polygon or Avalanche) offer a way to bypass Ethereum gas fees, while layer 2 technologies like rollups help reduce costs.

What are ETH gas fees?

ETH gas fees are the charges incurred for transactions and smart contracts on the Ethereum network. These fees are necessary to fund the computational power needed to execute commands within the Ethereum Virtual Machine (EVM).

The word “gas” serves as a metaphor for the fuel required to power the Ethereum Virtual Machine. Each transaction requires a specific amount of Ethereum gas depending on its complexity. The amount is expressed in Wei, the smallest unit of ETH. A simple ETH transfer requires less gas than a complex smart contract. Two factors determine the Ethereum gas fees: the gas limit, which defines the maximum computational power for a transaction, and the ETH gas price, which reflects how much a user is willing to pay per unit of gas.

The system ensures the Ethereum network runs efficiently and validators are fairly rewarded for their computational work. ETH gas fees fluctuate depending on network demand – high activity increases the cost, while low demand reduces it.

Why are they called “gas” fees?

In the Ethereum network, transaction charges are referred to as gas fees. Gas represents the computational effort required to execute transactions and smart contracts. The name is inspired by the energy consumption of a conventional machine: the term “gas” stands for the fuel powering the Ethereum Virtual Machine (EVM), much like a car needs petrol to run. This concept ensures every executed operation is charged a fee that reflects the necessary computing resources. Without such a system, malicious actors could flood the network with resource-heavy operations, leading to inefficiencies.

What is Gwei?

Gwei is a smaller unit of Ether (ETH), the Ethereum network’s cryptocurrency. One Gwei equals one billionth of an Ether, or 0.000000001 ETH. The name “Gwei” comes from “Giga” (billion) and “Wei.” Wei is the smallest denomination of Ether, named after cryptographer Wei Dai, the creator of B-Money. Wei Dai’s ideas are considered precursors to Bitcoin (BTC).

Gwei is mainly used to express gas costs, as it's more practical to quote ETH gas prices in Gwei rather than Ether. For instance, it’s more common to say that the ETH gas fee is 20 Gwei rather than 0.00000002 ETH.

Why are there Ethereum gas fees?

ETH gas fees play a key role in running the Ethereum network. They ensure the fair allocation of computing resources and efficient processing of transactions. Every action on Ethereum – whether a simple transfer or a complex smart contract – requires computational resources, which validators provide. ETH gas fees serve as an incentive for validators to confirm transactions and add them to the blockchain.

Another crucial element is protecting the network from spam and inefficient transactions. Without fees, malicious users could overload the network with worthless commands. Gas fees reduce such risks by ensuring that each transaction carries economic value. The exact workings of the system depend heavily on the Ethereum Virtual Machine and the interaction between gas limit and ETH gas price.

Ethereum Virtual Machine (EVM)

The Ethereum Virtual Machine (EVM) executes transactions and smart contracts on Ethereum. It functions as a decentralised global computer environment where developers can deploy programs (smart contracts). Each command executed by the machine requires a set amount of Ethereum gas, as the EVM consumes resources for every calculation.

The EVM operates deterministically, meaning all nodes in the network perform the same calculations with the same outcomes. To keep the network efficient and prevent it from being overwhelmed by endless or overly complex computations, every calculation incurs an ETH gas fee, expressed in Gwei.

The difference between gas limit and gas price

Ethereum gas fees consist of two main components:

Gas limit: indicates the maximum amount of computational effort allowed for a transaction
Gas price: determines the cost per unit of gas and affects how quickly a transaction is confirmed

Together, these factors determine the final Ethereum gas fee. A high ETH gas price can lead to faster processing, while a gas limit set too low may cause the transaction to fail.

How are ETH gas fees calculated?

On the Ethereum network, transaction fees (known as ETH gas fees) are calculated by multiplying the consumed gas units with the sum of the base fee and tip.

The formula is:

Total cost (in Gwei) = gas units × (base fee + tip)

One gas unit equals 0.000000001 ETH (10^-9 ETH), also known as Gwei. The base fee varies with network demand and is burned, while the tip (also called priority fee) goes to validators for processing the transaction.

Example calculation:

Say Jens wants to send Anna one ETH. A simple ETH transaction typically consumes 21,000 gas units. If the base fee is 100 Gwei and Jens adds a tip of ten Gwei, the fee is calculated as follows:

21,000 gas units × (100 Gwei + 10 Gwei) = 2,310,000 Gwei

Since one Gwei is 0.000000001 ETH, 2,310,000 Gwei equals 0.00231 ETH. So, the total cost of the transaction is 0.00231 ETH. Jens sends a total of 1.00231 ETH, Anna receives one ETH, 0.0021 ETH is burned and 0.00021 ETH is paid as a tip to the validators.

Base fee vs priority fee (EIP-1559)

With the introduction of EIP-1559, Ethereum’s fee model was revised. The transaction fee now consists of a base fee and a priority fee. The base fee is a fixed amount that applies to every transaction and varies based on network activity. This fee is burned – removed from circulation – which can have potentially deflationary effects on ETH. The priority fee, however, is an optional amount that users can add to prioritise their transaction over others. By offering a higher priority fee, users can ensure their transaction is processed faster by miners.

Gas limit and its impact on costs

The gas limit sets the maximum amount of gas that can be used to execute a transaction or smart contract. A higher gas limit enables more complex operations but also leads to higher potential costs. If the specified gas limit is too low, the transaction might fail due to insufficient gas to complete all required operations. In such cases, users lose the already consumed gas without the transaction being successfully completed.

It’s therefore important to set the gas limit carefully to ensure enough gas is available for the intended operation without risking unnecessarily high fees.

To optimise the gas limit, users can rely on wallets and tools that automatically adjust gas settings. Wallets and tools with automatic gas optimisation help set the right gas limit, while services like Etherscan’s Gas Tracker provide real-time data on current gas prices. These resources support users in striking the right balance between speed and cost.

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Which factors influence ETH gas fees?

ETH gas fees fluctuate significantly and depend on several factors. The most important is network congestion, as high activity on the Ethereum network increases demand for transaction processing. Alongside the core structure of the Ethereum Virtual Machine, scaling solutions such as layer 2 technologies and alternative blockchains with lower fees also play a role. Understanding the mechanisms behind ETH gas fees enables users to optimise costs effectively.

Network congestion and its impact

High network congestion directly leads to increased Ethereum gas fees. This happens because users are willing to pay higher ETH gas prices to get their transactions included in a block more quickly. The Ethereum network, originally designed as a decentralised machine, can only process a limited number of transactions per block. When demand exceeds the available block space, ETH gas fees rise. The system mirrors early auction mechanisms, where users with higher bids are prioritised.

While Bitcoin (BTC) has fixed block sizes, Ethereum was developed with a flexible gas limit. This mechanism allows for more precise cost calculation and granular control, visible even at the microstructural level. Ethereum’s scalability is constantly improving, but until it’s fully resolved, network load remains a key factor in fee levels.

Use of layer 2 scaling solutions

Layer 2 technologies are crucial for reducing ETH gas fees. These solutions process transactions outside the main blockchain and bundle them before submitting them to the Ethereum network. This reduces the direct competition for block space, significantly lowering ETH gas fees. Well-known layer 2 solutions include Optimistic Rollups and zk-Rollups, which minimise gas prices by aggregating many transactions. These concepts are based on compressing large volumes of information into smaller data blocks – similar to file compression.

Using layer 2 technologies makes Ethereum more scalable over time. This could not only reduce ETH gas fees but also improve overall user experience.

Alternatives like other blockchains with lower fees

Not everyone wants to deal with high Ethereum gas fees. Many users switch to alternative blockchains that offer lower transaction costs. Some of these alternatives are seen as precursors to future blockchain innovations. Networks like Polygon or Avalanche often provide cheaper fees and faster confirmation times. These blockchains use their own cost regulation mechanisms. While Ethereum adjusts gas fees through network load, many alternatives rely on different consensus mechanisms. Some use native stablecoins like DAI to pay fees, keeping costs more stable.

Completely switching to another blockchain depends on various factors, including the desired level of security and decentralisation. Still, low-cost networks remain an attractive option for many users facing variable ETH gas fees.

Practical tips on ETH gas fees

Ethereum gas fees can vary greatly, but there are several strategies to help you reduce costs, such as:

transact during low-cost periods: tools like Etherscan’s Gas Tracker help identify cheaper times
use layer 2 technologies: solutions like Optimistic Rollups or zk-Rollups bundle transactions and reduce ETH gas fees
use wallets with gas optimisation features: platforms like MyEtherWallet automatically adjust gas settings
use real-time fee trackers: services like Etherscan’s Gas Tracker or Blocknative Gas Estimator provide up-to-date gas prices
set gas limits strategically: wallets with auto-optimisation help choose the right limit and avoid failed transactions

Conclusion: understanding and optimising Ethereum (ETH) gas fees

ETH gas fees are a core part of the Ethereum network and act as fuel for transactions and smart contracts. They’re essential to the blockchain economy and often influence similar mechanisms in other networks. ETH gas fees are expressed in Gwei and based on the interaction between gas limit and ETH gas price.

The main factors affecting Ethereum gas fees are network congestion, the use of layer 2 technologies and possible alternatives to Ethereum. With strategic planning – such as transacting during low network loads, adjusting gas limits and using layer 2 solutions – users can save significantly on fees. In the long term, Ethereum will continue evolving to improve scalability and efficiency. Until then, knowing how ETH gas fees work is vital for cost-effective transactions.