What Are Gas Fees & How Is It Determined?

What Are Gas Fees?

Fees are necessary for just about every blockchain to exist, and the Ethereum network is no exception.

Gas fees are paid to Ethereum validators to validate the transaction within a block, which is necessary to get a block added to the blockchain. 

Gas fees are often denominated in ‘gwei’, but paid in ether (ETH). A single gwei represents one billionth of one ETH.

Gas Fee Formula

The first step in determining how much gas you will pay is to locate the current gas fees. You can view the current market fees on Etherscan.

After you determine the current gas rate denominated in gwei from the above link, determine how many units of gas your transaction will require. The units required will depend on the complexity of your transaction. Smart contracts require a lot more gas than swapping crypto. This number of units required is called the ‘gas limit’

Calculate the approximate cost of your transaction with the below formula. Note: This gives you gas fees in gwei, which represents one billionth of one ether coin.

Trade Fee = Gas Limit * Gas Price per Unit

Determining Gas Fees

The amount of gas fees to be paid to complete a transaction depends on two factors:

  1. The current state of the network

    1. The more congested a network is, the higher the gas fees. The Ethereum network is generally at its busiest during the U.S. equity trading session.

    2. Gas fees can fluctuate widely on a day-to-day basis as well. To see an estimate of the current day's gas fees, you can visit Etherscan.

  2. The speed of your order

    1. The more you pay in gas fees, the more likely your transaction will get validated in the next block.

    2. If you are not in a rush to have your order validated, you can opt to pay less than the current market rate. If you want your order to get validated and confirmed quickly, you can choose to pay more in gas fees than the current market rate.

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