What is behind the gas fee in cryptocurrency: A practical guide for Ethereum users in 2024

Ethereum (ETH), the second-largest cryptocurrency by market capitalization at $358.87B with a current price of $2.97K, remains the leading blockchain platform for decentralized applications and smart contracts. However, to use the network efficiently, it’s important to understand what gas fees are in cryptocurrency and how they impact your costs.

The Essence of Computational Payments: How the Gas System Works

Every operation on the Ethereum network—from simple token transfers to interacting with complex smart contracts—requires computational resources. The network compensates these resources through a payment system measured in gas.

Gas is not a currency but a unit of measurement for the amount of work. These payments are made in Ether (ETH)—the native cryptocurrency of the blockchain. The system calculates the total cost with a simple formula: gas units × gas price (in gwei) = total cost in ETH, where 1 gwei equals 0.000000001 ETH.

Let’s consider a practical example: sending ETH to another address requires 21,000 gas units. At a price of 20 gwei, the calculation is: 21,000 × 20 = 420,000 gwei or 0.00042 ETH. If the network is congested and the price rises to 50 gwei, the same operation costs 0.00105 ETH.

Revolution in Fee Structure: EIP-1559 and Its Impact

The August 2021 London Hard Fork update introduced fundamental changes via the EIP-1559 mechanism. Instead of the traditional auction system where users competed for block space, a two-tier model was implemented.

The system now consists of:

• Base fee, automatically set by the protocol based on network congestion
• Priority tips, voluntarily added by users to speed up processing

A significant portion of the base fee is burned, reducing the supply of ETH and potentially increasing the token’s value. This made fees more predictable and less prone to sudden spikes.

Cost of Different Operations: From Simple Transfers to Complex Contracts

Gas consumption varies greatly depending on the complexity of the operation:

During peak activity—for example, NFT hype or meme coins—prices can spike several times. Using decentralized exchanges like Uniswap can cost over 100,000+ gas units, increasing the total cost accordingly.

Monitoring and Planning: Tools for Expense Management

To manage costs effectively, use specialized trackers:

Etherscan Gas Tracker provides detailed info on current rates (slow, standard, fast) and historical data. It includes estimates for swaps, NFT sales, and token transfers.

Blocknative Gas Estimator shows real-time prices and helps forecast trends, indicating periods when fees decrease.

Visual tools like Milk Road display activity heatmaps, helping identify less congested periods (usually weekends and early UTC mornings).

Factors Influencing Prices: From Demand to Technical Upgrades

Network activity remains the main driver. High activity causes users to compete for space, raising bids. Low activity results in lower prices.

Operation complexity affects gas requirements. Smart contracts consume significantly more resources than simple transfers.

Technical upgrades drastically change the economics. EIP-1559 stabilized fees. Next-level optimization comes with Layer 2 updates.

Scaling Through Upgrades: Dencun and Future Prospects

The Dencun upgrade, including EIP-4844 (proto-danksharding), increased Ethereum’s throughput from about 15 transactions per second to approximately 1000 TPS. This reduces congestion and, consequently, fees.

Ethereum 2.0, with Proof of Stake and sharding, aims to lower fees to less than $0.001, making the network more accessible for mass adoption.

Layer 2 Solutions: Cost Reduction Strategies

Layer 2 solutions process transactions off the main chain and then record results compactly, drastically reducing load.

Optimistic Rollups (Optimism, Arbitrum) bundle operations and assume correctness, requiring verification only if challenged.

ZK-Rollups (zkSync, Loopring) use cryptographic proofs, providing higher security.

Practical result: transactions on Loopring cost less than $0.01 compared to several dollars on mainnet. These solutions have proven effective and are gaining popularity.

Practical Cost Optimization Strategies

Timing is key. Check Etherscan before transacting. Off-peak times often coincide with weekends.

Using Layer 2 is justified for frequent small transactions. Even with withdrawal fees to mainnet, you save in the long run.

Wallets with integrated fee suggestions like MetaMask allow you to see recommended fees and adjust before sending.

Batch operations—if planning multiple transactions, do them together during low activity periods rather than spreading them out over high congestion times.

Common Questions About Gas Costs

Why do I pay for failed transactions?
Because validators still spent resources processing them. Always check parameters before sending to minimize failures.

What does “Out of Gas” error mean?
You set a gas limit below what’s needed. Increase it and resend.

How to choose the optimal gas price?
Use tracker recommendations based on your urgency. The standard mode usually offers the best price-to-speed ratio.

Can the fee be higher than the transfer amount?
Yes, especially for small sums. That’s why small operations are often done on Layer 2.

Conclusion: The Path to Cost-Effective Transactions

Understanding how gas works in cryptocurrency is essential for active Ethereum users. Combining knowledge of EIP-1559, using trackers, and Layer 2 solutions allows for efficient cost management. As the network evolves through updates like Dencun and Ethereum 2.0, fees will continue to optimize, making blockchain more accessible to a broader audience.