Hidden Costs of Cryptocurrency Trading: What is the Gas Fee?
In the world of cryptocurrency, “gas fees” are undoubtedly a source of confusion and frustration for many. Every time we conduct a cryptocurrency transaction, we have to pay an additional fee beyond the transaction amount itself, which is called the gas fee. This fee is paid to the miners or validators in the blockchain network as compensation for providing transaction computations and block validation services. The existence of gas fees is an important element to ensure the normal operation of the blockchain network and is a key tool to prevent network congestion and attacks.
This article will delve into what gas fees are, why they are so essential in the cryptocurrency ecosystem, and how different blockchains handle gas fees. Especially for beginners, I will explain these concepts in the simplest way possible and introduce you to TON’s unique mechanism in terms of gas fees.
What is a Gas Fee? Understanding How Gas Fees Work
Definition and Purpose of Gas Fees: What Are Gas Fees?
In cryptocurrency transactions, gas fees are the transaction fees you need to pay in order to execute certain operations on a blockchain network. These operations can include transferring cryptocurrency, executing smart contracts (such as buying and selling NFTs), or even participating in decentralized finance (DeFi) activities. The main purposes of gas fees are twofold:
- Pay for the cost of running transactions: Every transaction on the blockchain requires computing resources to verify and record it in a block. These computing resources are primarily provided by miners or validators in the blockchain network, who use high-performance computers to perform the calculations and records. The cost of consuming these resources is paid for through gas fees.
- Prevent network attacks and congestion: Gas fees are also an important tool to prevent the network from being abused. Without any fees, malicious users could send large numbers of spam transactions, causing network congestion and even preventing legitimate users from making transactions. By introducing gas fees, attackers face higher costs for carrying out these attacks, thus making the network more secure.
How Gas Fees Are Calculated:
Gas fees are calculated differently across blockchains. For example, Ethereum uses a unit called “gas” to measure the amount of computational resources needed to execute a specific transaction or contract. The gas fee users pay is calculated by multiplying the “gas price” by the “gas usage” and is paid in gwei (a very small unit of Ether). This means that the more complex the transaction, the higher the gas usage, and the more you need to pay.
Volatility of Gas Fees: Why Do Gas Fees Fluctuate?
The amount of gas fees can be highly volatile and is influenced by several factors:
- Network congestion: When the blockchain network is busy, such as during an NFT craze or active DeFi activity, the demand for transactions rises, and so do gas fees.
- Transaction complexity: Executing complex smart contracts requires more computational resources, leading to higher gas fees.
- Block size limitation: The number of transactions that can fit into a block is limited, so the supply and demand for transaction space directly affect gas fees.
During peak periods on Ethereum, gas fees have reached hundreds of dollars, which is a huge obstacle for small transaction users.
How Different Blockchains Handle Gas Fees: Comparing Consensus Mechanisms
On different blockchains, gas fees and their mechanisms vary depending on the consensus algorithm. Here we discuss two major consensus mechanisms:
Proof of Work (PoW) and Gas Fees
Proof of Work (PoW) is one of the earliest consensus mechanisms, used primarily by Bitcoin and Ethereum (before 2022). In PoW, miners must use computational power to solve mathematical puzzles to verify transactions and add them to the blockchain. Since these puzzles are very complex, solving them requires a lot of electricity and computational resources. Therefore, gas fees under the PoW mechanism are generally high, especially during network congestion.
The main advantage of PoW is its high level of security, as attackers would need to control over 51% of the computational power to take over the network, which is practically impossible. However, PoW’s reliance on energy consumption makes it very costly and environmentally unfriendly.
Proof of Stake (PoS) and Gas Fees
Proof of Stake (PoS) is another common consensus mechanism currently adopted by Ethereum 2.0, Cardano, Solana, and other blockchain projects. In PoS, nodes are chosen based on the amount of cryptocurrency they hold and their “stake” in the network, rather than computational power. As a result, PoS nodes do not need to perform the intensive calculations required by PoW miners, greatly reducing energy consumption.
Under the PoS mechanism, users can stake their tokens in the network and participate in transaction validation. In return, they receive part of the transaction fees as a reward. This mechanism reduces energy demands and provides a stable economic incentive, encouraging users to participate in network maintenance.
The Open Network (TON) Gas Fee Mechanism: Reducing Gas Fees
TON, a relatively novel blockchain, introduces some innovations in gas fee design. One of the most notable is the recently launched W5 smart wallet, which allows users to make “gasless” transactions under certain conditions, such as using USDT or Notcoin for payments. This gives TON a significant advantage in attracting new users by lowering the barriers to entry into the cryptocurrency world.
Gas fees on TON are typically paid in its native token, Toncoin, and cover storage fees, routing fees, and computation fees. However, with the gasless feature, users can transact more conveniently, especially when operating within the Telegram ecosystem, enhancing the user experience and lowering the entry barrier by reducing the need for Toncoin.
Can I Earn from Gas Fees?
Gas fees are not just a cost; they also represent an important source of income for many participants in the blockchain network. So, can regular users also profit from gas fees? The answer is yes.
Become a Validator to Earn Gas Fees
In a Proof of Stake (PoS) system, becoming a validator is one of the main ways to earn gas fees. Validators are responsible for confirming and packaging transactions and recording them on the blockchain. In return, they receive rewards consisting of transaction fees (i.e., gas fees). On blockchains like TON, validators can earn not only fees but also rewards in newly minted Toncoin, making the economic returns for participating in validation even more attractive.
Staking Delegation to Earn Gas Fees
If you don’t have the technical capacity or capital to run a validation node, you can also delegate your Toncoin to validators, known as “staking delegation.” This allows ordinary users to entrust their Toncoin to qualified validators and share a portion of the rewards. This arrangement not only increases the security of the network but also provides a way for regular users to participate in the network and earn rewards.
Risks and Challenges of Earning Gas Fees
Of course, there are risks associated with participating in validation and staking. For example, if a validator makes mistakes or engages in malicious behavior while verifying transactions, their staked tokens may be “slashed,” meaning a portion of the staked funds will be forfeited as a penalty. This mechanism is in place to ensure the integrity of validator behavior and protect the security of the network.
Gas Fees: Lowering Barriers and Driving Cryptocurrency Adoption
When I first encountered the concept of gas fees, I, like many others, was confused: Why do we need to pay these extra fees for transactions? But as I delved deeper, I came to understand the importance of gas fees and the logic behind their operation. Gas fees are not just an additional cost; they are a core mechanism to maintain the security of the blockchain network and ensure the effectiveness of transactions.
I understand that gas fees can be a barrier for beginners, especially during peak times when high fees can be frustrating. However, these fees serve a purpose—they prevent malicious actors from abusing network resources and protect the interests of other users. TON’s gasless feature is an excellent solution, as it makes it easier for newcomers to enter the ecosystem without being scared off by high fees.
Over the past few years, I have seen many innovations in blockchain technology and witnessed how gas fees have shifted from being a burden to becoming an incentive mechanism. By staking or becoming a validator, users can not only earn rewards but also contribute to the security and growth of the network. This economic model not only gives participants a sense of purpose but also encourages more people to get involved in building the blockchain.
In the future, I believe that as technology continues to develop, gas fees will become more manageable, and even more innovative solutions will emerge to lower these costs. Whether it’s gasless transactions or new consensus mechanisms, all these efforts ultimately aim to make blockchain technology more widespread, allowing everyone to enjoy the convenience and freedom it brings.
If you are also interested in these technologies or want to learn more about how to earn from gas fees, feel free to follow my updates. Together, we can explore this promising world and discover how cryptocurrency is changing our lives.