There is no such thing as a free lunch and there’s certainly no such thing as a free transaction. If spending $5 to receive $20 at an ATM can be frustrating, imagine spending $100 to send $500 or receive a PNG of a penguin.

While it might seem a steep example, that can sometimes be the case in order to send a transaction or perform a function on Ethereum’s network. And unlike the case with ATM fees, there’s no way the Ethereum network will refund you for your gas fees at the end of the month.

Gas is the term for the amount of ether (ETH) – the native cryptocurrency of Ethereum – required by the network for a user to interact with the network. These fees are used to compensate Ethereum miners for the energy required to verify a transaction and for providing a layer of security to the Ethereum network by making it too expensive for malicious users to spam the network.

Even though they are an effective means of incentivizing miners to keep verifying transactions and maintain network security, gas fees are nonetheless every user’s most hated part about Ethereum. People hate gas fees not only for a general disdain toward fees, but because they can be absurdly expensive when the network is congested.

So, let’s dive into what can make gas fees so expensive and what simple steps you can take to save money when interacting with Ethereum’s ecosystem.

In order to get an understanding of why gas fees cost so much and how you can save on them, it’s important to understand how they are calculated.

Because fees on Ethereum are usually much less than 1 ETH (although sometimes it doesn’t feel like it), Ethereum employs a metric system of denominated units called “wei,” where 1 ETH is equal to 1 quintillion wei. (A quintillion is a number with 18 zeros after it.) One of the most common wei denominations, and the one used to represent gas fees, is gigawei (gwei), or 1 billion wei. Therefore, when you check on a gas tracker and see that the average gas for a transaction is 100 gwei, that means you should expect to pay a base fee of 0.0000001 ETH for a given transaction ($0.00031 at press time)/

If you have ever minted a non-fungible token or purchased one on a secondary market like OpenSea, then you might be thinking that 100 gwei sounds like a steal for an NFT transfer. That is because the base fees are just one part of the total fee structure. Following the readjusted gas fee structures brought in by Ethereum’s London upgrade, the total fee is now calculated as:

Total Fee = Gas unit (limits) * (Base fee + Tip)

It’s important to note that if you set your gas unit limit below the amount of gas needed to complete your interaction, your transaction will be reverted but you wouldn’t receive your gas fee back. That is because the miner has already done the equivalent amount of work to process your transaction and they receive the fees for doing so even if the transaction doesn’t go through.

To illustrate the total fee formula, let’s say that I am looking to send you 1 ETH and the average amount of gas required to transfer ETH on the Ethereum network is 23,000 gwei. I would set that as my gas limit. The minimum amount of gas required to send the transaction at the time (base fee) is 150 gwei, but I want it to get to you faster so I add a tip of 20 gwei to the transaction. In this case, our formula for a total fee would look like this:

Total Fee to send you 1 ETH = 23,000 gwei * (150 gwei + 20 gwei)

Following, the total fee would be equal to 3910000 gwei, or 0.00391 ETH (about $13, at press time). This means that I would send 1.00231 ETH to the Ethereum blockchain and you would receive 1 ETH to go buy some cool JPGs.

With an understanding of how total gas fees are calculated, we can get a better idea on why gas fees cost so much. Mainly, the two biggest factors that have caused gas fees to soar recently are:

The first major reason why gas fees are costing more is simply that ETH costs more. Recall that gas fees are denominated in gwei, which is a different way to represent an amount of ETH. The main catalyst for this rising demand is the booming decentralized finance (DeFi) and NFT sectors, which continue to attract new users to Ethereum’s ecosystem.

Also, gas fees cost so much now because Ethereum’s total fee formula is dynamic. Remember, base fees are the minimum amount of gas required to include a transaction on the Ethereum blockchain and are adjusted by the demand for transaction inclusion. As a result, base fees have consistently increased as a result of increasing demand for the Ethereum blockchain.

There are more than 3,000 decentralized applications (also known as “dapps”) running on the Ethereum blockchain, all of which are looking to have their transactions included alongside other Ethereum network users. Dapps alone account for more than 100,000 daily active users on Ethereum, executing a total of around 250,000 transactions a day.

The widespread adoption of Ethereum has not only led to higher base fees but also has made the gas for base fees much more volatile. In an effort to try to make gas fees more consistent, Ethereum’s EIP 1559 upgrade adjusted the calculation of base fees to be determined by the transaction before it. While the real impacts of EIP 1559 are debated, base fees continue to drive the total cost of gas fees up due to the increased demand for Ethereum.

How to spend less on gas