The Ethereum blockchain is a vast and diverse network of traders and developers and currently stands as the most popular blockchain in the world. But Ethereum has one glaring issue, and that's gas fees. But why, exactly, are gas fees charged? Are they necessary, and why are they getting higher and higher over time?

What Is an Ethereum Gas Fee?

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The Ethereum network does not operate on its own. In fact, the work of hundreds of thousands of validators is required to ensure that the blockchain remains secure and transparent. A validator is an individual who can verify transactional blocks on the Ethereum blockchain, as well as create new blocks. This function is crucial to the network but comes at a cost.

An independent validator must run their computer 24 hours a day, seven days a week, to do their job properly. As you can probably guess, powering a computer around the clock like this tends to hike up one's electricity bill. This can dissuade validators from continuing their work on the blockchain, as electricity prices continue to rise each year, and no one wants to get stuck paying hundreds of extra dollars a month if they're not getting rewarded.

This expended computational power is known as gas.

If you're using the Ethereum blockchain and want to conduct a transaction, incurring a gas fee is unavoidable. This is because validators need to be paid compensation if they're going to work and use energy to verify your transaction and add it to a block. But gas fees are not the same across the board. In fact, they differ depending on a variety of different factors.

Calculating Ethereum Gas Fees

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Ethereum gas fees are charged in a unit known as gigawei, or gwei. One gwei represents a billionth (0.000000001) of an ETH. This may seem incredibly small, but it does not mean Ethereum gas fees are low.

In 2021, the Ethereum network underwent the London Upgrade, which involved a hard fork of the original chain. This allowed Ethereum to improve and resulted in an alteration to the previous gas fee calculation. So, today, the basic equation used for calculating a gas fee for any given activity on Ethereum is as follows:

Total fee = gas units (limits) x (base fee + tip)

Let's break down the equation above to understand how every Ethereum gas fee you incur is calculated. The gas units, or limit, refers to the maximum amount a user is willing to pay in gas fees to have their transaction added to a block. While it may seem logical to choose the lowest possible limit for every transaction, it's worth noting that low-limit transactions aren't seen as a priority by validators. So, in this case, you can bump yourself up the pending list by paying a little extra.

On top of this, different activities on the Ethereum blockchain have different minimum gas limits, so you must know your chosen activity's minimum limit before setting your preferred gas limit.

This brings us to the base fee. This refers to how much gas a given activity requires to be processed on the Ethereum blockchain. This factor is entirely dependent on the current network load of the blockchain. For example, if user demand on the network is high, the base fee will likely increase for everyone.

Lastly, the tip (or priority fee) represents the additional amount of ETH (or gwei) you're willing to spend to make your transaction a priority by validators. Because a validator knows they'll get a little extra on top of their regular payment through a tip, they're more willing to process your transaction in less time if you offer this kind of financial incentive.

Ethereum gas fees are highly dependent on the state of the network at any given time. If the network is congested, the fee will increase. You can try only using the network at off-peak times to try and lower your gas fees.

Because Ethereum's gas fees fluctuate frequently, gas fee calculators are helpful. These websites track Ethereum priority fees, base fees, and other data in real time to determine what your gas fee will look like if you conduct a transaction. Different gas calculators work in different ways, so you may prefer one to the other.

Why Are Ethereum Gas Fees Getting Higher?

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While Ethereum gas fees fluctuate daily, they generally increase over time.

The main reason for this is Ethereum's popularity. If there's one thing that fuels the crypto industry, it's demand. When demand for an asset or service goes up, prices will also increase.

Today, Ethereum has hundreds of thousands of users, with over a million transactions conducted daily. The sheer demand drives up gas fees, as running the blockchain takes more computational power.

While other blockchains are becoming popular, such as Algorand and Solana, none deal with the sheer workload of Ethereum. This issue has given way to Ethereum killers, blockchains with attributes that challenge Ethereum's popularity, such as lower transaction fees and higher scalability.

But Ethereum isn't the only network that charges gas fees, and some other blockchains still charge a fee for their validators, but in a different way. The core reason why Ethereum gas fees are so well known throughout the decentralized world is that they're that much higher than the fees of competing blockchains. However, there are a few ways to reduce your Ethereum gas fees, though they don't all work exactly the same.

Can You Reduce Your Ethereum Gas Fee?

As Ethereum's gas fees climb, users are looking for alternatives. And, with the crypto and DeFi industries diversifying, more options are offered to us. This may result in another blockchain one day overtaking Ethereum in popularity. After all, the decentralized world is ever-evolving, and there's no guarantee that those who are on top will remain so.