Understanding Gas Fees: The Essential Fuel for Blockchain Transactions

Author: Irene Hazilias

What is Gas / Gas Fees / Gas Token on the Blockchain?

Gas refers to the fees required to perform transactions or execute smart contracts on a blockchain network, such as Ethereum. Think of gas as the "fuel" that powers the operations within the network. Just like a car needs fuel to run, transactions and smart contracts on the blockchain need gas to be processed.

When you send cryptocurrency, interact with decentralized apps (dApps), or execute smart contracts, you are using blockchain resources. These resources are managed by a decentralized network of computers, called nodes. Gas is the fee you pay to incentivize these nodes to process and validate your transactions. Without gas, your transaction won’t get completed, as there is no reward for the nodes performing the work.

What are the Gas Fee Tokens?

Gas fee tokens are specific types of cryptocurrency used to pay for the gas needed on the blockchain. They are usually the native token on that blockchain. On Ethereum, for example, the gas fee is paid using ETH (Ethereum's native token). Other blockchains have their own gas tokens, like BNB on Binance Smart Chain or POL on Polygon.

How Much Gas Do You Need?

The amount of gas needed varies depending on the complexity of the transaction or smart contract and the current congestion of the network. Think of it as a toll on a busy highway: the busier the highway (network), the higher the toll (gas fee). Ethereum gas fees are universally higher than other networks. If you are dealing in smaller value amounts, you might choose to use other chains to buy and sell or interact with. During peak times, ETH gas fee prices can be in the hundreds, as opposed to other networks, which could be more like $10 - $20.

What if I Don't Have the Gas Fee Token in My Wallet?

If you do not have the gas fee token in your wallet, you cannot perform any transactions. For instance, if you send USDT to your wallet on the Polygon chain, you won't be able to bridge, swap, or do anything with that USDT until you send POL to that wallet.

Gas Fees on Centralized Exchanges vs. Decentralized Platforms

Now that you understand what gas is, let’s look at how it works on centralized exchanges (CEXs) versus decentralized exchanges (DEXs) and platforms.

Centralized Exchanges (CEXs)

Centralized exchanges like Coinbase, Binance, or Kraken allow you to buy, sell, and trade cryptocurrencies. They are called "centralized" because they operate under a single company or authority. When you perform a transaction on a CEX, you don't need to worry about gas fees directly. Instead, the exchange itself charges you a transaction fee, usually taken from the amount you’re trading. These platforms handle all the behind-the-scenes work for you, including paying for network fees on your behalf.

Decentralized Platforms (DEXs)

On the other hand, decentralized exchanges (DEXs) like Uniswap or Sushiswap, or dApps like EasyDeFi and Enzyme, allow users to trade cryptocurrencies directly from their own wallets, without the need for a central authority. When you use a DEX, you’re interacting directly with the blockchain, which means gas fees come into play.

With a DEX, you need a decentralized wallet like Rabby, MetaMask, or Trust Wallet, where your cryptocurrencies are stored. When you make a trade or interact with a dApp, your wallet interacts with the blockchain and uses gas tokens to pay for the transaction. For example, if you're using Ethereum's network, you'll pay gas fees with ETH. These fees go directly to the network of nodes that process the transaction.

Final Thoughts

Gas fees play a crucial role in ensuring the seamless operation of blockchain networks, much like fuel powers a vehicle. Whether you're transferring assets, interacting with dApps, or executing smart contracts, understanding gas and gas tokens is essential for navigating the decentralized world efficiently.

Choosing the right network can make a significant difference in costs, especially during periods of high congestion. Knowing how to manage gas tokens, avoid getting stuck without them, and recognize the differences between centralized and decentralized platforms will help you make smarter decisions in your blockchain interactions.

As blockchain adoption continues to grow, gas fees are likely to evolve, potentially becoming more user-friendly and efficient. Staying informed will empower you to make the most of your decentralized financial journey.