A friend told you they made a couple of million trading random images on the blockchain, and you’re out here googling what a non-fungible token is. NFTs provide an exciting way to make money off digital assets. However, some basic concepts need to be explained in detail before you go off finding the next gold mine, and one of them is NFT gas fees.
Now you might ask, “NFT gas fees? For something that is most probably virtual and has no relation to the real world. Are NFTs so valuable that I have to pay gas fees?” As such, allow me to explain NFT gas fees for you.
What are NFT gas fees?
What Are NFT Gas Fees?
NFT gas fees refer to the amount you pay when transacting on most NFT trading platforms. This fee is incurred due to executing a contract or conducting a transaction on a blockchain, such as minting an NFT from scratch or buying one on the secondary market.
We all understand that the beauty of an NFT comes from its ability to be unique and also represent other digital or even real-life items as tokens on a blockchain.
On the other hand, blockchains are decentralized databases known for their security. The security part is because a blockchain stores each transaction in the form of blocks — a combination of the transaction data, a timestamp, and the previous block’s cryptographic hash — which are validated by all computers on that network.
Changing the contents of a block would mean hacking it, and you can only do this by changing the same information on all subsequent blocks. This makes the whole blockchain network difficult to hack, most probably due to the ridiculous time and computational power that it would require.
Put simply; the ‘Gas’ can is a unit that represents the amount of computational power that you would need for any transaction on a blockchain. However, this ‘gas’ is measured differently by the various blockchains that support NFTs and this, in turn, affects the gas fees that users have to pay.
How are NFT gas fees calculated?
To explain NFT gas fees from various NFT blockchains, I would also be telling how they calculate their gas.
Ethereum NFT gas fees
The Ethereum blockchain was the very first NFT blockchain out there, and you could say that others that subsequently supported NFTs took a cue from Ethereum. In Ethereum, ‘gas’ is the amount of ETH (ether) that a user pays to cover computational costs when interacting with the network.
Each unit of gas on Ethereum is calculated using the term gwei, which equals one-millionth of an ether or 0.0000000001 ETH, the blockchain’s native cryptocurrency.
While this might look negligible right now, it amounts to a lot when you have to pay gas fees for every transaction on the network, from sending ETH to your crypto wallet to minting, selling, or buying NFTs, etc. During the market meltdown of 2021, users had to pay gas fees of over $2k for transactions on the Ethereum blockchain.
Initially, calculating ETH gas prices was easy as you simply had to guess the gas you would need for your transaction. Of course, if you are wrong and the actual gas price is higher, your gas fees get taken, and your transaction is reverted.
Issues with gas prices came with the London upgrade, which sets a minimum price for each transaction. Each block has a base price users must pay to get their transactions recorded on the blockchain. It doesn’t stop there. You also need to include a gas limit (the amount you’re willing to spend on your transaction) and a tip. Mathematically, it can be represented like this:
Total fee that you would pay = gas unit (limits) x (base fee + tip)
- Gas unit (limit) refers to the highest amount you would be willing to spend on that transaction.
- Base fee refers to the lowest amount required for any transaction to get on the blockchain.
- Tip refers to the additional fee (or bribe) that can get your transaction processed much faster.
When a user decides to initiate a transaction on the Ethereum blockchain, the miners have to solve a cryptographic puzzle to validate the transaction. This method is the proof-of-work algorithm.
This is because the puzzles are complex and extremely energy-consuming. The miner that solves the puzzle first gets to validate that transaction and is also given compensation for their time using the gas fees. This incentive ensures that these miners continue providing their support to the Ethereum blockchain.
If you wish to find out the current gas prices on the Ethereum blockchain, you can use the online tool Etherscan.io.
Solana
Solana is another blockchain dedicated to non-fungible tokens. This blockchain uses a proof-of-history algorithm which was built on the proof-of-stake mechanism.
Although it is still in Beta, Solana sees itself as being primarily gasless even though it can handle 50,000 transactions per second (far more than Ethereum). While users also pay transaction fees, they are relatively negligible too.
Why do NFTs need gas?
Since a part of the gas fees are given to miners that validate transactions, does that mean that this is the only purpose for the initiation of gas fees? Of course not, there are many other important reasons for this. Some of which include;
To ensure that people do not spam the blockchain
Since the gas fees cost money, most people are very careful about initiating transactions on the blockchain. This also helps in preventing everyone from being on the blockchain at once.
To ensure the security of the network
The more the miners work to validate transactions, the more secure the blockchain gets to be. This is because each block is linked to the previous transaction, and the new transaction is encrypted as well.
Why is gas a problem for artists
Gas fees are required for creating, buying, and selling NFT art. This means that the creators have to make up for their gas when they decide to set the price of an NFT. Sometimes, when these costs are added up, the selling price of that NFT becomes higher than its perceived value, making it hard for buyers to purchase them.
How do I reduce gas fees?
There are a lot of things that you can do to reduce gas fees, they include:
- Researching about the peak business hours of that blockchain: This is because most blockchains such as Ethereum increase their base fees as a result of the demand at that moment in time. This means that if you wait for those periods outside rush hour, the gas fees would be much lower.
- Looking out for cheaper solutions: Not all blockchains charge exorbitant gas fees; some are cheaper than others. Just go for the cheaper ones.
- Reduce your Gas unit (Limit): Although this might cause your transaction to take a while to be validated, this would save you gas fees in the long run.
Frequently Asked Questions on NFT Gas fees explained
Why are NFT gas fees so high on Ethereum?
Ethereum is the biggest NFT blockchain out there, and this blockchain is constantly running a variety of Dapps and DeFi services at all times. When you put this together with the many transactions that occur each second, you would find out that the Ethereum network is always busy. This, in turn, increases their gas fees as miners will have to prioritize transactions with higher transaction fees.
Do you pay gas fees to sell NFT on Ethereum?
Like all transactions on the Ethereum blockchain, selling an NFT also costs computational power since the transaction would have to be added to the Ethereum blockchain. This, in turn, would require gas fees as well.
Does every NFT activity require gas fees?
Although a lot of NFT activities require gas fees, some don’t. Such as:
- Listing an NFT.
- Reducing the price of that NFT.
- Lasy minting (however, this is dependent on the blockchain).
Conclusion
As we have seen above, many different factors affect how much gas fees will cost you. However, if you keep these points in mind, then you should not face any problems.
Also, remember that the higher the number of transactions on that blockchain, the higher the chances that you’ll need to pay more gas fees. So, make sure that you’re always keeping track of the current situation on that blockchain.
