What are gas fees?

A gas fee is the charge a user pays to have a transaction processed on Ethereum or a similar blockchain. It pays for the computing work involved. The fee changes from minute to minute with demand.

Why do transactions cost money?

Every transaction on Ethereum has to be run and stored by thousands of computers. Space in each block is limited, so the network needs a way to ration it and to stop people flooding it with junk. Charging for every operation does both.

"Gas" is the unit that measures how much work a transaction requires. Sending ether from one wallet to another is the simplest case and uses 21,000 units of gas. Calling a smart contract, for example to swap tokens, takes more steps and so uses more gas. The fee is the amount of gas used multiplied by the price per unit. That price is quoted in gwei, a tiny denomination equal to one billionth of an ether.

What are the base fee and the tip?

Since an upgrade in August 2021, the price per unit of gas on Ethereum has had two parts:

• The base fee. The network sets this automatically for each block. It rises when recent blocks were more than half full and falls when they were emptier. The base fee is destroyed, or "burned", and nobody receives it.
• The priority fee, or tip. The user adds this to encourage a validator, one of the participants who assemble blocks, to include the transaction sooner.

Wallet software usually suggests both figures. Users also set a gas limit, the maximum amount of gas they will pay for. A transaction that runs out of gas fails, and the fee for the work already done is not refunded.

Why do gas fees spike?

Fees are an auction for limited space. When a popular token launches, a market falls sharply or a sought-after NFT collection goes on sale, many people try to transact in the same few minutes and bid against each other. At busy moments in the past, the fee for a single trade on Ethereum has exceeded the value of a small transaction. Critics say this prices ordinary users out of the main network.

Other blockchains, including Solana, charge transaction fees too. The guide to crypto fees covers other costs, such as exchange commissions.

How do layer 2 networks cut fees?

A layer 2 is a separate network that sits on top of Ethereum. It processes transactions itself, bundles thousands of them together and posts a compressed record to the main chain. The cost of that one record is shared among everyone in the bundle, so each user pays a fraction of the main-chain price. The trade-off is that users rely on the layer 2's operators and software as well as on Ethereum itself.