Transacting NFTs on Ethereum can turn out to be an expensive proposition. This is due to the ever-increasing gas prices. If you’re new to the NFT space, you may be curious to know more about NFT gas fess and why such a thing exists.
NFT gas is the fee you pay to execute any transactions on the blockchain. These fees are used to pay the people who operate the computers that execute the transactions. Gas fees are determined by the current demand on a blockchain, at the time of a transaction.
Although gas fees can be a nuisance, they do have their place when it comes to NFTs and the blockchain. This article is your complete guide to understanding everything there is to know regarding gas fees.
What are NFT gas fees?
Gas fees are payments that users have to make to compensate for the computational energy required to process transactions on a blockchain. This is very much like the processing fees credit cards may charge for transferring money to various accounts or for paying bills.
Most commonly, NFT gas fees are mainly mentioned when talking about the Ethereum blockchain. Currently, the Ethereum blockchain has some of the most expensive gas fees; ranging anywhere from $5 to $500+ depending on the type of transaction and the demand on the blockchain at the time of minting.
Ethereum uses something called a proof of work (pow) consensus mechanism. PoW functions by utilizing validators (called miners) to solve cryptographic algorithms. Finding a successful solution to these algorithms enables sets of transactions to be processed and added to the blockchain, and as a result, requires a lot of computational energy.
Successful miners who are able to solve these algorithms get compensated for their effort via gas fees. This incentive makes them provide continued support to transactions. So, the total transaction fee will be equal to the gas limit times the gas price at that moment.
i.e Total Transaction Fee = Gas Limit * Gas Price
If the transaction fee is equal to the gas limit, your transaction will be executed and the entire blockchain will be updated. If the transaction fee is greater than the gas limit, the transaction does not go through and is reverted. If you have a large contract and you are trying to execute it very fast, then the gas prices can be very high.
Conversely, if you wait for the transaction to take its time the price can be lower.
How are NFT gas prices set?
When it comes to determining the price of NFT gas, it’s similar to how we determine the price for most things in the world.
Gas fees are determined by the supply and demand between the blockchain’s miners. The exact formula for Ethereum gas equals; Gas units (limit) x (Base fee + Tip). This can be calculated as 21,000 x (100 + 10) = 2,310,000 gwei or 0.00231 ETH.
If there is high demand for transactions, this requires more miners to complete complicated algorithms creating more work and energy consumption; hence increasing the gas fee. If the gas price does not meet the threshold power, miners can choose to not process the transaction.
Every transaction on the Ethereum network costs gas. Gas on the Ethereum network has been assigned a market price based upon the demand for resources in the network at a particular moment in time.
This is done to ensure that there is efficiency in the network and there is the best use of computational power. The main criteria for gas expenses will depend upon the size of the contract you are trying to execute as well as the speed at which you want that transaction to be completed.
As a network experiences high traffic it will be more expensive to create and buy NFTs. Gas prices keep changing but forecasting gas prices is inadvisable as well. The gas fees that are charged to you directly get credited to the miners. This is to compensate for their work which provides the computational power to verify your transaction and ensure that it goes through.
What is gas limit?
The gas limit refers to the maximum amount of gas you are willing to spend on a transaction. A higher gas limit generally means that your transaction has priority over others who submitted a lower gas limit.
You can decide the maximum amount of gas you want to spend on a transaction. This means that you can set a limit on the gas price you want to expend and wait until it reaches that limit. This ensures that you have some control over the transaction expenses.
If you are willing to wait then the transaction will get processed when the limit you set has been reached.
Why do NFTs use gas?
Although gas fees can be frustrating at times, there is a legitimate reason why these fees exist.
Gas fees exist as an incentive for blockchain miners to use their computers to solve complicated algorithms which are necessary to complete blockchain transactions. If there are no incentives, then don’t expect miners to expand their computational power to run smart contract operations. No one will do it out of goodwill.
Essentially, gas fees are necessary to keep the blockchain safe and functioning correctly. Without gas fees, there would be zero people willing to execute these complicated transactions.
Where to check Ethereum gas prices?
You can easily check the current price of Ethereum gas using Etherscan.io. This online tool will tell you the estimated cost of transfers and interactions on the Ethereum blockchain. Also, you can see the top 50 addresses that consume and spend the most gas.
Why gas fees can be a problem for some?
You need to understand that gas fees are the price you pay to create, buy, and sell NFTs on the Ethereum blockchain. However, this has caused many issues for aspiring NFT creators and collectors.
When gas prices are high it becomes difficult for creators to mint and sell their work. Since gas prices differ from the actual valuation of NFTs, costs may be much more than the actual cost of the assets you’re selling.
It is not just the sellers, buyers also face issues with gas prices. Buyers have to pay gas fees whenever they place an order or cancel one. Actions such as making a purchase or transferring an NFT to another wallet will incur gas fees.
New sellers on the platforms are usually unaware of this and end up not earning much or even losing money on their transactions. If the gas is not adequate then the transaction will get reverted and you will get charged for that as well.
The good news is that Ethereum is working to upgrade parts of the blockchain to a proof of stake mechanism. The proof of stake mechanism is much more efficient compared to proof of work, and as a result, gas fees are likely to be reduced significantly.
How to avoid high gas fees?
Gas fees may be a pain for many users of the Ethereum blockchain, but someone has to pay for all the work and energy it takes to verify all these transactions. Below are several ways that you can reduce gas fee spending.
- Transact when demand is low: Transact either very early in the morning or late at night when there is less demand on the blockchain.
- Set your own gas limit: You can set your own gas limit to a price that you are willing to pay. Just know that this option can take some time.
- Plan ahead: You can check historical network congestion by using a tool like EthereumGasPrice to view historical gas data, and plan accordingly. Some days have cheaper gas fees than others.
- Explore Ethereum layer-2: Layer-2 is used to help scale an application by processing transactions off of the Ethereum Mainnet (layer-1) while still maintaining the same security measures and decentralization as the mainnet.
- Utilize another blockchain: Although this might not be the best choice, you buy and sell NFTs from blockchains that have lower gas fees or no gas fees at all. Some examples include Cardano, Solana, and the Wax blockchain.
Ultimately, without NFT gas fees, we would not be able to transact on the Ethereum blockchain and other blockchains that require gas fees due to their consensus mechanism. On the bright side, it seems that gas fees will be greatly reduced in the near future, giving hope to both creators and collectors in the NFT space.