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NFT Gas Fees Explained (In-Depth Guide)
Gas fees not only help to keep transactions on the blockchain accurate, they are also essential to running the network. There are many ways to lower your gas fees - read on to find out how!
Introduction
Gas fees are a key concept in the world of blockchain technology and non-fungible tokens (NFTs). This is because if you want to complete any transaction that’s recorded on a blockchain, you’ll be asked to pay something called a “gas fee”. Gas fees are a type of transaction fee that is charged to users of a blockchain network, such as the Ethereum blockchain, in order to incentivize miners or validators to process transactions. In this article, we will do a deep dive into what gas fees are, how they work, and how they impact NFT transactions.
What are Gas Fees?
Gas fees are a type of transaction fee that is charged to users of a blockchain network. The fees are used to incentivize miners or validators to process transactions on the network, and are paid in the form of the native cryptocurrency of that blockchain. Gas fees help to keep blockchain transactions accurate and keeps players using the protocol honest. These fees can be called gas fees (ex. Ethereum, Polygon blockchains) or transaction fees (ex. Solana, Bitcoin blockchains) depending on the blockchain you’re using.
Any activity performed directly on a blockchain, such as executive a smart contract to purchase an NFT, requires computation power. This computation is needed to process, complete and record the transaction on the blockchain. Depending on the setup for a blockchain, they may use either validators or miners. For example, Bitcoin is a proof-of-work blockchain that relies on miners to process transactions whereas Ethereum is now a proof-of-stake blockchain that uses validators who play the same role as miners. Validators are a distributed group of individuals that run a specialized computer program to authenticate blockchain transactions, helping to run the blockchain in exchange for the native cryptocurrency of that blockchain.
Gas fees can vary from blockchain to blockchain, and from a number of other factors such as time and network congestion. These fees are calculated based on the complexity and size of a transaction, as well as the current demand for processing power on the network. When a user submits a transaction to the network, they specify the maximum gas fee they are willing to pay. Miners and validators can then choose to process the transaction if the fee is sufficient.
How are Gas Fees Calculated?
The process of calculating gas fees begins with the user submitting a transaction to the network. The transaction is then added to the pending transaction pool, where it waits to be processed by miners or validators. Depending on whether the blockchain uses proof-of-work or proof-of-stake to validate its transactions, there is a different method to choose which miner or validator is selected to process the next transaction.
Gas fees are charged by the network and are based on the network’s current activity as well as the size of the transactions. For blockchains that process smart contracts, each machine-level operation in a smart contract accumulates an amount of gas units that are added and multiplied by the base fee plus a tip fee. These fees combined add up to the gas fee. This process also means that gas fees do not remain the same for different transactions because the factors that go into calculating the gas fee can change. Users, however, can choose to pay the gas fee at that time, or reject it and wait for a lower gas fee.
In addition, since the price of cryptocurrencies fluctuates, if their price increases this will also increase the cost of gas fees in terms of fiat currency. For example, if the price of ETH increases 10% but it costs the same amount of ETH to complete an NFT purchase, then the purchaser is paying 10% more in fiat currency to buy that NFT.
Some blockchains are known for having higher gas fees than other blockchains. Ethereum has a reputation for high gas fees, which the Layer 2 scaling solution Polygon was created to solve. Other blockchains were also created that have lower gas fees, such as Binance Smart Chain, Fantom, Avalanche and Solana. These alternative blockchains offer similar smart contract functionality as Ethereum but have lower gas fees.
How do Gas Fees Impact NFT Transactions?
Gas fees are a key concept in the world of NFTs. NFT transactions can be complex and require a significant amount of processing power, which can result in high gas fees. For example, buying or selling an NFT on a marketplace typically involves multiple steps, including transferring the NFT from one wallet to another, updating the ownership records on the blockchain, and potentially transferring other assets such as cryptocurrency.
As a result, NFT transactions can often require higher gas fees compared to other types of transactions on a blockchain. This can make NFT transactions more expensive for users, which can impact the overall adoption and use of NFTs. The majority of NFTs are minted on the Ethereum blockchain, which is known to have high gas fees. This fact only increases the amount of gas fees that NFT purchasers have to pay to acquire NFTs.
There are a few ways that high gas fees can impact NFT transactions. High gas fees can make NFT transactions more expensive for users. This can discourage users from buying and selling NFTs, which can reduce the overall liquidity and activity in the NFT market.
High gas fees can make it more difficult for new NFT projects to gain traction. Many NFT projects rely on initial sales and trading activity to generate revenue and build a community of users. If gas fees are too high, it can make it difficult for these projects to get off the ground, which can stifle innovation and growth in the NFT space.
High gas fees can also create uncertainty and volatility in the NFT market. Gas fees can fluctuate depending on the demand for processing power on the network. This means that the cost of an NFT transaction can vary over time, making it difficult for users to predict and plan their spending.
To address these challenges, some NFT projects and marketplaces are taking steps to mitigate the impact of gas fees on NFT transactions. For example, some projects are implementing off-chain transactions, which can allow users to buy and sell NFTs without incurring gas fees.
Other projects are implementing gas optimization techniques, which can reduce the amount of gas required to process NFT transactions. This can help to lower the overall cost of NFT transactions and make them more accessible to users.
How to Reduce Gas Fees
Gas fees can be unpredictable. They can range from pennies to hundreds of dollars, which isn’t ideal when you want to know the full cost of completing a transaction on the blockchain. Blockchains are designed for decentralization and gas fees are the supporting mechanism for achieving this goal. Gas fees provide an economic reward that incentivizes individuals across the world to participate in running the network collectively. Users of that blockchain must pay fees to the individuals who upkeep the blockchain and validate its transactions. These gas fees are essential not only for preventing bad behaviour but also serve as an automatic method for putting transactions into priority sequence.
When there is high demand on a blockchain, this can drive up the cost of gas fees to astronomical and impractical levels. High demand for popular projects, such as Yuga Labs’ Otherdeed for Otherside NFT collection, have driven gas fees on the Ethereum network to extreme levels in the past, extending past the cost of the NFTs themselves. These spikes in network activity can not only cost end users more in gas fees, they also cause significant delays in transaction settlement across the network that ripple out beyond one NFT project.
Timing is essential for lowering gas fees. Weekends can be a good time because of lighter network traffic. The more transactions that are competing for processing power at the same time means that gas prices will be driven higher. One tried-and-true method for paying lower gas fees is to try that transaction again at another time. This method works best for transactions that aren’t urgent and don’t have to be completed at a specific time or date.
Transaction complexity is another factor that can increase gas fees. Using a sophisticated dApp like Uniswap involves many complex transactions, which means you will have to pay higher gas fees. Transferring an NFT from one wallet to another wallet is a simpler transaction and results in lower gas fees. To lower the gas fees that you have to pay, consider ways to simplify the type and the number of transactions that you need to use.
Choosing to use blockchains that have lower gas fees is another way to lower the amount of gas fees you have to pay. Polygon is a popular Lay 2 scaling solution to Ethereum that has vastly lower gas fees, while Ethereum is known for having high gas fees. To lower the total amount of gas fees you pay, using a mix of different blockchains or choosing to use blockchain with lower gas fees if you have the option can be an effective method.
Not all blockchains have gas fees. Using a custodial platform, such as Kraken NFT, does not incur gas fees because transactions take place off the blockchain network as long as the NFT stays on the platform. Using a combination of approaches can reduce your gas fee expenses.
To get an estimate for gas fees before making a transaction, there are free tools such as the BlockNative gas estimator or the Ethereum gas tracker on Etherscan. It can be helpful to check gas prices beforehand if your transaction isn’t urgent.
Conclusion
Gas fees have a significant impact on NFT transactions. High gas fees can make NFT transactions more expensive for users, which can discourage adoption and reduce liquidity in the market. To address these challenges, some NFT projects and marketplaces are implementing solutions to mitigate the impact of gas fees on NFT transactions. As an individual, there also are steps you can take to reduce the gas fees you have to pay. Overall, gas fees help to keep blockchain networks secure and are an important part of the validation process.