What Gas Fees Are, How to Calculate It and When Is It the Lowest

What are Gas Fees?

Gas fees are transaction fees that users pay to process transactions or execute smart contracts on a blockchain network. These fees serve as compensation for validators or miners who handle transactions and add them to the blockchain. Gas fees fluctuate based on network demand and supply, often increasing during periods of high congestion.

What are Gas Tokens?

Gas tokens are the tokens used to pay for transaction fees on a blockchain network. Typically, each Layer 1 blockchain uses its native coin as the gas token. This means the token required for transaction fees corresponds to the blockchain you are operating on.

For example:

• On Ethereum, you use Ether (ETH).

• On Binance Smart Chain, you use Binance Coin (BNB).

• On Solana, you use Sol (SOL).

How are Gas Fees Calculated on Ethereum?

Hot wallets like MetaMask and Rabby typically include features that automatically estimate gas fees based on current network conditions. These estimates account for two main components: the base fee and the priority fee. We illustrate the differences between the two fees using Ethereum as an example below.

Base Fee

The base fee is a mandatory component of the gas fee, dynamically adjusted based on network congestion. It is measured in Gwei, a subunit of Ether (ETH). A mechanism unique to Ethereum is that the base fee is burned, meaning it is removed from circulation, which helps manage the overall supply of Ether.

Priority Fee

The priority fee, also known as a tip, is an optional amount added to incentivize miners or validators to prioritize the transaction. It is also measured in Gwei. Unlike the base fee, the priority fee is paid directly to miners or validators.

Total Gas Fee

The total gas fee is the sum of the base fee and the priority fee. During network congestion, users might need to manually increase the priority fee to ensure their transaction is included in the next block. Automated estimates, like those from Rabby, may not always be enough during high congestion, making manual adjustments necessary. In such cases, higher priority fees incentivize miners or validators to process your transactions over others.