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Ethereum Gas Fees & How to Navigate Them

You’ve probably heard of the term “gas fees” when looking into the crypto space. But what are Ethereum gas fees, and how do they work? Simply put, gas fees are payments made by users during a transaction to compensate for the computing power used by validators.

A validator runs computer software to verify transactions and add blocks to the blockchain. This process requires them to use electricity. The gas fee is paid to the validator as a reward to compensate for the cost of the electricity used. This is called “proof of work” (PoW).

Ethereum gas fees

If you’ve ever transacted on the Ethereum network, you’ve probably been hit with a high gas fee. Ethereum uses proof of work (PoW) and each block added to the blockchain needs to be verified by a validator. Validators compete to solve mathematical puzzles and process the transaction. The winning validator is rewarded with a block reward (gas).

The issue with PoW occurs when lots of transactions are being processed and lots of validators are competing to solve the puzzle. The power being used is insanely high. High gas fees are needed to offset this energy usage to reward miners. If validators didn’t receive rewards, no one would mine, transactions wouldn’t be processed, and the blockchain would die.

If you’re an avid Ethereum user, you’ve probably seen significant discrepancies between gas fees. Sometimes they’re eye-wateringly expensive and other times extremely low. The cost of a gas fee depends on how congested the network is- how many transactions are being processed, and how much power is being used at that time.

Dealing with Ethereum gas fees

Here is a quick resource you can use to check the busiest and quietest times for the Ethereum network. Try to coordinate your transactions with the low fee times on this heatmap.

The future of Ethereum

So, should you stop using Ethereum? After all, there are other blockchains out there with much lower fees. Solana and Polkadot, to name a few.

Not so fast. The Ethereum team aren’t crazy. They know this is a problem that must be solved. And solving it they are! Many innovations to the Ethereum blockchain are underway, and in today’s piece, we will cover one.

Proof of stake (PoS) is another method used to validate transactions. PoS is used by blockchains such as Solana and Avalanche. The difference between PoW and PoS is instead of anyone being able to validate transactions, validators must first stake tokens to have the chance to validate. There is also no block reward; rather, validators are incentivised by taking a small fee from every transaction they validate.

Less power, less competition, less throughput. This makes things a lot more cost-effective, energy-efficient and scalable.

The good news for Ethereum fans: the network will be moving over to a PoS in 2022. So you can expect lower gas fees and faster transactions. Other interventions such as sharding are also coming to the Ethereum network, but we will save that for a later piece.

Disclaimer: THIS IS NOT FINANCIAL OR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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