Transactions in a decentralized system require fees which typically
go to miners who process and review all transactions as part of
securing the network and adding transactions to public ledger.
It is basically the per unit fees for computational power used by
miners for performing specific actions in a particular blockchain.
Network fees can fluctuate drastically depending on network
congestion and the computational complexity of the operation being
performed. Not only different blockchains have different fees but
the same blockchain will have variable fees depending on market
conditions at that time.
In UTXO based assets like
bitcoins the transaction fees depend partly on the number of inputs
the transaction has to process. In the ethereum network this
transaction fee is known as gas.
Gas is the cost of
executing an operation on the Blockchain network. An operation can
be something as simple as sending ETH/Crypto to another address, or
can be more complex, such as swapping assets on a decentralized
exchange or running a smart contract function.
Gas fees compensate Blockchain miners for the cost of energy
required to verify a transaction and add it to the blockchain. At
the time of writing this article, Ethereum uses a Proof-of-Work
(PoW) consensus mechanism to securely record transactions on the
blockchain. This is a costly activity for miners but is essential
for the security of the Ethereum network, so gas fees exist to
compensate the miners for carrying out these complex computational
tasks and provide them with an income stream that incentives them to
continue securing the network.
Gas powers every
application and transaction and the amount paid depends on the type
of transaction and the speed of it. The amount of gas that a
transaction requires is not constant across all transaction types,
but rather is variable and largely dependent on two factors. The
first is the computational complexity of the operation being
executed. The computational complexity of any given operation
depends on the amount of data that needs to be processed on the
blockchain in order to complete the operation.
As a
general rule, as an operation becomes more complex the computational
resources required to process the operation increases, hence
resulting in higher gas fees.The second is network congestion.
During periods where the network is congested from high transaction
volume, users have to engage in gas pricing wars to increase the
likelihood that their transaction is included in a block. This
generally results in sharp increases in the gas fee required to
submit an order on the network. On the flip side, when network
congestion is low, gas fees remain fairly stable
