Why Do We Pay Gas Fees?
A simple understanding of gas fees can be derived when we compare it to the traditional financial system. Simply see gas fees as the transaction charge that you pay for moving funds from one bank account to the other.
TL;DR
- Gas fees are the charges paid by a user to the blockchain network whenever they send crypto from one wallet address to the other
- It is usually a compensation for the computational power and energy used by miners/validators to maintain decentralization and security on the network
- Gas fees vary from blockchain to blockchain and the Ethereum network is known to have the most unstable gas fee charge among blockchain networks
Gas Fees as a Transaction Charge
Gas fees are usually charged when a user sends tokens from one wallet address to another wallet address. What is known as a gas fee is nothing other than the transaction charge fee that accrues for completing such a transaction.
Gas fees are fractions of the total amount sent between wallets. On most blockchains, it is calculated as a percentage fraction (usually between 0–1%) of the entire transaction value. For example, a blockchain that charges 0.1% as gas will charge 50 cents as transaction fees when a user moves $100 worth of tokens between wallets.
As is now evident, gas fees on most blockchains are usually very low compared to the transaction processing fees charged by most traditional banks and fintech platforms.
Reward for Miners/Validators
On the flip side, gas fees are necessary to maintain security and decentralization on blockchains. This task always falls on validators and miners to ensure transaction validation and consensus on the network. The gas fee is what serves as the fuel that keeps the entire chain on.
Miners and validators are compensated with the gas fees that users pay and the more fees a validator receives, the more transaction they process.
On the Ethereum blockchain, gas fees take a bit of a twist. Validators are still required to process transactions, however, the amount payable is usually dependent on the demand and supply functions on the network.
What this means is that when the demand for translation processing is high, the gas fee will also increase, and when activities are low, gas fees also become low. This has led to a system of incentivization among users. Users who want their transactions to be processed faster can increase the amount payable as fees so that validators can quickly process their transactions above others with lower bids.
Placing this alongside the congestion on Ethereum, it becomes clear why users have been consistently complaining of high fees on the network. It is also the reason project developers are beginning to switch to alternative blockchains such as Solana and Cardano to build their projects.
Conclusion
Gas fees are essential to how the blockchain functions. They are the oil that lubricates the entire blockchain network, making it a win-win for network stakeholders.
To learn more about IvoryPay, feel free to use the links below:
