Understanding Gas in Cryptocurrencies

Users frequently anticipate seeing essentially the same functioning mechanisms in cryptocurrency applications as they are in traditional banking applications. But in practice, things end up being a little more nuanced. Transactions with cryptocurrencies operate on a different set of rules than those in traditional financial apps since they are based on blockchain technology. Today we'll examine what is gas in crypto, why gas is necessary for cryptocurrency transactions, as well as what solutions blockchain developers offer for users.

How Cryptocurrency Transactions Work

Blockchain technology may be thought of as a database made up of transactions that are arranged into blocks based on established rules. Every block contains information from the one before it. The foundation of this technology is the decentralization concept, which states that all of the system's members' computers, which together create a network, serve as the base instead of a single location. For instance, if a transaction is conducted over the blockchain network, its details are stored on a million computers and will never be lost or altered.

Any activity that moves cryptocurrency or other data between addresses is referred to as a transaction in the cryptocurrency world. Only until the sender has signed a unique digital key is the transaction transmitted. This data is subsequently sent to the blockchain network, where miners and validators verify that the transaction complies with all regulations. If the transaction satisfies these requirements, it is combined with the others to form a block and is put to the main database.

Transaction Fees and Native Coins

The user has to pay a fee to the miners or validators in exchange for their validation effort in order to send a transaction. This commission may only be paid with the in-network native currency. The commissions will be computed in BTC if the blockchain is Bitcoin and in ETH if the network is Ethereum.

What are Gas Fees in Crypto?

In the world of cryptocurrencies, "gas" is the computational work needed to finish a transaction. Complex transactions cost more to complete since they use more gas. Also, the user increases the gas price if the transaction needs to be validated as soon as feasible. Miners may choose to disregard the transaction if the gas price is too low. Gas in crypto is like motor fuel, and a transaction is like traveling from point A to point B. The user must fuel the vehicle before it drives in order to reach the desired location. 

For instance, on the Ethereum blockchain, network costs known as "gas" are expressed in terms of units called "Gwei," which is equivalent to 0.00000001 ETH, a fraction of an ETH token. The computing resources of Ethereum needed for every kind of blockchain transaction—transfers, exchanges, token conversions, protocol interactions, and NFT issuance—are paid for with Gwei.

As a result, if a user wants to transfer a USDT token via the Ethereum blockchain, for instance, he has to pay for the computational resources needed to complete the transaction using native network coins. He is unable to pay the fee in USDT because the network's policies demand payment in ETH units. The commission-generating system in other blockchain networks will function similarly to Ethereum.

Fluctuations in Gas Prices

The price of "fuel" can differ even if the volume of gas used in various transactions might be the same. The market demand for handling transactions in the network of the cryptocurrency with the second-largest market capitalization determines the price of gas. The cost of transactions might rise to extremely high levels during periods of significant user activity.

Developer Solutions for Gas Payment Issues

Development teams working on different projects are creating payment functionalities for tokens that the user intends to send in order to get around the difficulties associated with running cryptocurrency gas activities. For instance, a user with a USDT stablecoin might utilize the Ethereum network to pay a charge in USDT without having any ETH in his balance.

Creating unique wallets that will covertly fund the network's processing power with native currency and pay the wallet client's commission in pre-selected tokens is one such option.

In late July, the TON blockchain development team unveiled a wallet standard that would enable token transactions on the network without requiring the storage of Toncoin within the wallet. The wallets for TON Space and MyTonWallet will support the new capability.

As part of the Shanghai upgrade, similar capability was added to the Ethereum blockchain in March 2023. On the other hand, the mechanism is still relatively new on the network of the second-most valuable cryptocurrency.

As a secondary method of expanding Ethereum, Starknet provided a unique approach to resolving the issue of payment for processing power. In early 2024, it was decided to provide the option to pay transaction fees using native STRK tokens in addition to ETH currencies, based on the outcome of the project's community voting.

Conclusion

In conclusion, gas fees in cryptocurrency transactions, which fluctuate depending on network demand and complexity, represent the computing labor necessary to accomplish a transaction. Blockchain developers have created alternatives, such as paying transaction fees in tokens other than the native currency, to reduce excessive gas prices and enhance user experience. These developments, like the Shanghai update for Ethereum and the new wallet standard from TON, are meant to streamline payments and improve user efficiency for blockchain transactions.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.