crypto 101 gas fee basics in cryptocurrency banner

Crypto 101: Gas fee basics in cryptocurrency

Every service has a price and the same can be said for blockchain services. This often comes in the form of a gas fee, a compensation for the network’s computing power when used in a transaction. It has become the driving force behind many crypto networks and how it works is a fundamental knowledge all traders like you should know. 

Gas fees can be found in almost every second-generation blockchain, also called ‘smart network’. These are defined by the reliance on smart contracts to conduct many of its user exchanges. Knowing how gas fees work gives you insight on what to do to make a blockchain work in your favour and here are the basics. 

Gas fee basic definition

A gas fee is, as mentioned, a compensation for the network’s processing functions. Everything counts like trading with other users through peer-to-peer (P2P) features as well as depositing on online casinos to play Bitcasino slots. The fee is typically a fraction of the crypto being transferred but some services can have a fixed rate as compensation. 

What gas fees are for

There are three basic uses for Gas fees and all of them involve paying different factors in how a network functions. Here are three of them and what they do for the users:

Execution of smart contracts

Gas fees are primarily associated with smart contracts which used to be exclusive to second generation blockchains like Ethereum (ETH). These are conditions set by two or more parties on a network to predetermine instructions after a condition is met. Most of the time, this condition is compensation like gas fees that one of the parties involved needs to pay. 

Once the conditions are met, the instructions are executed and the contract is fulfilled. Gas fees paid this way usually goes to its maker and a fraction of it is paid back to the blockchain for burning. 

Incentives for miners or validators

Every blockchain network gets its computational power from volunteers to maintain its nodes. For example, Ethereum is a network of data kept in nodes that are owned and monitored by a validator. Since Ethereum is a proof-of-stake (PoS) network, validators put a stake of 32 ETH for one node and they can have more if they can pay the minimum price. The network chooses which node will oversee a transaction and so its owner receives the gas fees for that job.

If the network uses a proof-of-work (PoW) consensus mechanism, then the validator is called a miner. They compete to see which of them is the first to process a transaction so they can be the recipient of the gas fees while also earning minted crypto from every block generated. One example of this is Bitcoin (BTC) which didn’t have smart contracts until the Taproot upgrade. 

Transaction priority in a network congestion

Blockchains tend to have network congestion when there are too many users and not enough validators to oversee their transactions. This often results in delayed payments that aren’t too impactful but it is inconvenient. It’s especially important for time-sensitive offers like a Bitcasino live casino bonus or volatile crypto market price at an exchange. Paying more gas fees will give your transaction request priority over users who are only paying the minimum rate. 

How gas fees are paid

Gas fees are paid in the network’s native currency. That means Ethereum fees require ETH which is the case even if you are sending ERC-20 tokens. Every transaction requested will come with a specified minimum fee requirement, scaling with the amount of crypto you are moving. This happens because more data needs stronger computational processing power. 

The gas fees are separately computed from your transaction and you can raise the fee if you want. Doing so will incentivise validators to prioritise your request and higher offer means faster validation time. Gas fees are typically paid in a native currency’s lower denomination because of how small it really is. For example, Ethereum is paid in GWEI which is 0.00000000107 ETH or WEI which is 0.000000000000000001 ETH. 


Gas fee basic details

Gas fees also come with two basic properties namely the rate and limit. They are calculated separately from each other and here is how you can usually find them as:

Gas fee rate

The gas fee is decided primarily through the measurement of gas units, usually equal to the native crypto’s lowest denomination. In Ethereum, for example, the lowest denomination is WEI so 1 gas unit is equal to 1 WEI. How much gas units are asked of the user depends on how congested the network is at the time the transaction is requested. 

In other cases, the user can determine how much they are willing to pay which can be declared while making the request. Most blockchain have a fixed minimum gas unit which needs to be paid. The fee you have to pay can’t be lower than this even during the best time. For Ethereum, the minimum is always 21,000 gas units, meaning it’s 21,000 WEI. 

Some cryptocurrencies don’t have gas units like Bitcoin because it doesn’t have the same complex function as Ethereum. Instead, it always has a minimum fee charged in BTC’s lowest denomination, Satoshi (0.00000001 BTC). You can also offer more than the minimum to incentivise miners to take your order first like in Ethereum. 

A third generation network like Cardano (ADA) on the other hand has a variable transaction rate. The minimum can change over time depending on policies as decided by the community. Its range is between 0.15 ADA and 0.17 ADA throughout 2022 and is likely to change in the next update as well. 

Gas fee limit

Gas fee limit refers to the maximum amount you can pay on a transaction. The limit in Ethereum is currently 1,000,000 gas units while Cardano has 30,000,000 gas units. Both can be changed sometime in the future in an update if the developers deemed it necessary. Other crypto like Bitcoin don’t have a specified limit. 

A custom gas fee can be however big you want it but it can reach a certain point when excess expense won’t be necessary. The best crypto wallets like MetaMask, Ledger Live, and Exodus can help suggest a gas fee rate which is calculated based on network congestion.

Top three blockchain networks that use gas fees

Almost every crypto network now uses gas fees in their standard operations. While PoW chains are also recently updated to use this system, its use is still best demonstrated by PoS networks. If you are looking to invest in networks that use gas fees, then here are a few recommendations. 

Ethereum (ETH)

The Ethereum network is the second-most valuable blockchain in the crypto market following Bitcoin (BTC). It has maintained its position thanks to its widely adapted native currency (ETH) and all the projects built using its mainnet as their foundation. Hence, Ethereum is currently the world’s leading smart contract network and it’s involved in various crypto-based industries like entertainment and community engagement. It is also one of the first cryptocurrencies to be used in online casino gaming like in Bitcasino and its ERC-20 tokens have shortly followed. 

Binance Smart Chain (BNB)

Binance is one of the largest crypto exchanges in the world, making its network vital to many traders and investors alike. Holding on to its native currency, Binance Coin (BNB), gives you leverage on completing your transaction needs. The Binance Smart Chain (BSC) is a second generation blockchain that uses smart contracts to make trading feasible through decentralised finance (DeFi). Gas fee can help prioritise your orders, ensuring that you get the best price on the exchange. 

Cardano (ADA)

Cardano aims to provide a foundation for decentralised applications (dApps) similar to Ethereum. The main difference is that it uses a special PoS consensus algorithm called Ouroboros that prioritises scalability. It is therefore growing more efficient the more people join its network. 

Hence, it uses a processing model called Extended UTXO that only charges fixed gas fees. Users cannot raise the gas units they are willing to pay and it is not affected by congestion on the network. It still has room to grow but it has already made its way to many, making it one of the most rewarding currencies to use in Bitcasino live casino gaming.  

Gas fees importance in crypto

Gas fees have offered a dynamic between the users and validators alike. Paying this small fee, usually only costing a fraction of the currency, ensures that the transaction is secure and efficient. After all, it is the compensation for computational resources that keeps a blockchain network operating. 

The people who provide that resource are the validators who are incentivised to do so because they are paid for their investment through gas fees. This is a mutually beneficial relationship between users and validators who keep blockchain networks operational. Thus, every time you use their services, even as little as the regular deposit you make to play Bitcoin slots, helps the crypto community thrive as a whole.