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Gas Fees And "Gas Wars" Explained

November 2, 2022 | Updated on November 2, 2022

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As the adoption of cryptocurrencies continues to rise, the network consumes more energy or “gas” to process transactions. In recent months, we've seen a lot of discussion around the topic of gas fees, with some even describing these fees as “gas wars”. 

So, what really are gas fees and how do they apply to the world of NFTs? In this article, we'll explain everything you need to know about gas, gas fees, and the current state of the “gas wars.”

Note: This article contains technical terms about blockchain and decentralized technology.

What are transaction fees?

In order to understand gas fees, it is first crucial to understand transaction fees. Whenever a transaction is made on a blockchain, that transaction must be verified by block creators or node operators. Miners (in Proof-of-Work) and validators (in Proof-of-Stake) are rewarded for their work with transaction fees (miners and validators are basically computer devices). These fees are paid in the network's native token. For instance, in the case of Ethereum, these transaction fees are paid in ETH. 

Transaction fees are necessary in order to incentivize node operators to continue verifying transactions and adding them to the blockchain. If platforms did not charge transaction fees, then miners and validators would not be compensated for their work. As a result, transactions would not be verified and added to the blockchain in a timely manner, if at all.

What are gas fees?

Gas fees are a type of transaction fee that is specific to blockchain technology. We will use Ethereum as just an example. Gas fees on the Ethereum network are paid in ETH, and they are paid to validators who verify transactions and add them to the Ethereum blockchain. 

The reason Ethereum uses gas fees instead of a flat transaction fee, like traditional payment processors or banks, is because Ethereum's smart contracts can vary in complexity. Simple transactions, like sending ETH from one address to another, require very little computational power and can be done with a low gas limit and gas price. More complex transactions, like NFT drop mechanisms or interacting with a decentralized application (dApp) like TRLab, require more computational power and therefore a higher gas limit and gas price.

Why do gas fees exist?

In a nutshell, gas fees help prevent the Ethereum network from attacks. If transaction fees were low or nonexistent, it would be very easy for an outsider to spam and launch a targeted attack on the network.  By creating a large number of transactions that miners would have to process, validators, in turn, help secure the network for all users, like you and me. Therefore,  high gas fees, make it s very expensive to launch any kind of network attack.

Ethereum recently underwent a network upgrade called the Merge. If you’re curious about how this affects gas fees on Ethereum, learn more here.

What is  “Gas war”?

A gas war is a situation in which two or more parties are vying for control over a blockchain network at the same time. They do this by repeatedly submitting transactions with high gas fees simultaneously in an attempt to outbid each other for confirmed blockchain transactions.  This battle is very much like an auction except those that bid are not necessarily those that pay; the NFT collectors are the ones that fall victim in these wars since gas fees are non-refundable and must be paid for before bidding begins.

In the end, when a transaction fails, that money is long gone and the collector loses the gas fee, their time spent, and does not even get to mint their NFT!

How can you avoid gas wars?

There are a few things that you can do to avoid a gas war:

1. Use services that allow you to set a gas limit

There are now several services, including MetaMask, that allow you to set your own gas price. This means that you can choose to pay a lower gas fee if you are willing to wait longer for your transaction to be processed. Make sure to look for this option when you are ready to mint.

2. Use a gas price calculator

There are also a number of gas price estimation tools, like BlocknativeEtherchain, and Etherscan. You can use these to estimate how much you should be paying in gas fees.

3. Avoid the crowd

Sometimes the best solution to avoid a gas war is to simply wait and avoid the crowd. Popular NFT projects can cause gas fees to skyrocket at the time of launch. You can wait until there is less activity on the network to buy NFTs from that project. In other words, wait a few minutes or an hour or two before trying to mint post-drop.

Conclusion

Gas fees are a necessary part of the Ethereum network and are used to pay for transaction processing. They also help prevent network attacks and can act as a deterrent to would-be attackers. If you’re a first-time NFT collector, be sure to watch out for gas wars to avoid unnecessary costs.

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