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“I paid $62 just to send $100. What?”
That’s the kind of reaction many new users have after making their first Ethereum transaction during peak congestion.
No NFTs. No DeFi. Just a simple ETH transfer.
Yet the gas fee was more than half the value of the transaction.
And they thought it was a bug.
But it wasn’t.
It was Ethereum being busy.
Welcome to the world of gas fees.
What Is Gas, Really?
If you’ve ever driven a car, you already understand gas.
Think of your Ethereum transaction as a car trip. To drive (process your transaction), you need fuel, and on Ethereum, that fuel is called Gas.
Just like fuel powers a car, gas powers your transaction on the Ethereum network.
But there’s a catch: The busier the road, the higher the fuel price.
So when the Ethereum network is crowded (say, during a hyped NFT mint), gas prices shoot up because everyone’s trying to get their transactions through.
Why Gas Prices Change
Back to our highway example:
If traffic is light, fuel is cheap, and if traffic is jammed, fuel costs more to cut through
Ethereum works similarly.
You can pay a higher gas price to get your transaction picked up faster by validators
Or you can set a lower price and wait.
Understanding the Components
Gas Limit
This is the maximum amount of gas you’re willing to use.
For simple ETH transfers, it’s usually 21,000.
Gas Price
This is how much you’re willing to pay per unit of gas, measured in Gwei.
Gas Usage:
This is the actual amount of gas consumed by your transaction. It’s often the same as your gas limit for simple transactions, but complex operations might use less than the limit you set.
Breaking Down Gas Fees: A Real Example:
- Gas Limit = 21,000
- Gas Price = 35.06 Gwei
- ETH Price = $3,492.21
Step 1: Calculate Gas Fee in ETH
21,000 × 35.06 / 1,000,000,000 = 0.000736 ETH
Step 2: Convert to Dollars
0.000736 × 3,492.21 = $2.57
So, the fee for that simple transaction is about $2.57.
But when the network gets congested, gas prices might 10x, and that’s how people end up paying $50+ just to send ETH.
The Game-Changer: EIP-1559
In August 2021, Ethereum introduced EIP-1559, which revolutionized how gas fees work. Instead of the old auction-style system where users had to guess appropriate gas prices, EIP-1559 brought predictability and efficiency.
How EIP-1559 Works
The new system introduces several key components:
Base Fee: This is a fixed price per unit of gas that the network automatically adjusts based on demand. Here’s the interesting part: this base fee gets burned (destroyed), permanently removing ETH from circulation.
Max Fee: The maximum amount you’re willing to pay for the transaction. This acts as your safety net.
Max Priority Fee: The tip you’re willing to give to miners to prioritize your transaction.
A Real EIP-1559 Example
Let’s say you’re making a transaction with these parameters:
Base Fee: 70 Gwei
Max Fee per Gas: 90 Gwei
Max Priority Fee per Gas: 15 Gwei
Here’s what happens:
- 70 Gwei gets burned (the base fee is destroyed)
- Miners receive 15 Gwei (your full priority fee since Max Fee – Base Fee = 20 Gwei, which is higher than your 15 Gwei priority fee)
- You get 5 Gwei refunded (90 – 70 – 15 = 5 Gwei back to your wallet)
This system eliminates the guesswork. You know exactly what you’ll pay upfront, and any excess gets refunded automatically.
Looking Ahead
Gas optimization isn’t just about understanding current fees. It’s about developing strategies to minimize costs while maintaining transaction reliability. In the next part of this series, we’ll dive into practical techniques for optimizing your gas usage, including timing strategies, transaction batching, and smart contract optimization tips.
The key takeaway? Gas fees might seem complex, but they follow predictable patterns. Once you understand these patterns, you can navigate the Ethereum network like a pro, saving money and avoiding the frustration of failed transactions.
Remember: every Gwei saved is money back in your pocket. And in the world of DeFi and NFTs, where you might make dozens of transactions per month, those savings add up quickly.
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