What Are Gas Fees In Crypto? What You Need to Know

Gas fees are the fuel Ethereum network needs to process transactions on the chain. While banks charge a transaction fee, the Ethereum network charges gas. This fee keeps the network working effectively and helps prevent unnecessary transactions. 

Are “gas fees” unique to Ethereum? 

Several blockchain networks charge a transaction fee to conduct blockchain transactions. It can be high or low based on network congestion and other factors. On Ethereum, this transaction fee is the value you get when you multiply gas consumed with the unit gas price. 

When someone says “gas fees,” there’s a high chance they’re referring to the cost of processing a transaction on the Ethereum chain. 

In this article, we’ll take a deep dive into understanding gas fees and their associated factors. Here’s a quick overview of what we’ll cover: 

Table of Contents

• What Are Gas Fees in Crypto? 
• How Gas, Blocks, and Ethereum Fee Market Comes Together to Create a Transaction
• How to Calculate Gas Fees (+ Example)
• Why Do Gas Fees Matter?

Understanding Gas Fees In Crypto: Why It Exists

While gas fees pay Ethereum to perform a transaction, it’s much more than that. It primarily exists to safeguard the network against different types of attacks. If it’s removed, the network can become unusable or shockingly expensive to use. 

To understand gas fees in detail, you must deeply dive into Ethereum. It’s not just a digital ledger like Bitcoin: Ethereum is a smart contract chain. Simply put, a virtual computer on the Ethereum blockchain can run smart contracts (instructions and programs). 

You give these instructions through transactions. When you submit a transaction, you provide the Ethereum Virtual Machine (EVM) instructions to perform your transaction. This transaction might be like executing code within a function set in the EVM. When the instructions are heavy, it takes longer to run them. 

This opens up an interesting attack vector. Malicious users get an opportunity to spam the network with transactions that take longer to execute. When the volume of such transactions increases, the network will become unresponsive. 

Genuine users can also flood the network with several genuine transactions, making the network unresponsive. 

Gas fees solve this problem. 

For each EVM's instruction, the user is charged a gas fee. The charge depends on whether the EVM writes data on the chain or how long it takes to execute. If malicious users spam the network, they must pay for gas from their pockets, making the attack costly. 

Genuine users specify how much gas they’re willing to pay and how much ETH they can pay for each gas unit. They’re charged according to the amount of gas spent on the transaction. If the network becomes overwhelmed, gas prices increase, discouraging users from further overloading the network.

Other smart contract chains temporarily or permanently disallow some users who transact too frequently. Some chains also limit the number of instructions each transaction can include. Ethereum lets users perform transactions even when overwhelmed but at a higher gas cost. 

The gas prices are usually denominated by Nanoether, better known as Gwei. One Gwei equals 0.000000001 ETH. 

Who Decides the Gas Fees?

The gas fee isn’t set by developers, miners, or project leadership. No single entity decides gas fees. The traffic on the network determines the transaction fees. If the traffic is lower, the transaction fees are also lower. 

Most wallets will auto-calculate the gas fees for a transaction. You can place your limit on the gas fees, but that doesn’t guarantee that your transaction will be executed. The gas limit should exceed the minimum threshold required to perform a transaction. Your wallet would show an estimated gas fee to give you a ballpark. 

How Gas, Blocks, and Ethereum Fee Market Comes Together to Create a Transaction

An Ethereum node runs an EVM that emulates a computer system. The hosting machine consumes CPU cycles, disk access, and memory during operation. Gas is a measurement for this work. Not all transactions are calculated equally. Operations like writing on a disc or accessing memory consume different amounts of gas based on the transaction's complexity. 

ETH sends cost 21,000 gas, but Augur bets can cost 1,000,000 gas. To cover this gas cost, the senders specify how much they’re willing to pay for gas. This is known as the gas price. The transaction cost is the gas consumed multiplied by the gas price per unit. 

Suppose a malicious user programs a smart contract into an infinite loop. Each loop consumes some gas, which costs the user. Gas limits help abort the execution of such transactions. The EVM stops the transaction when it reaches the gas fees but still charges the full fees for the malicious transaction. 

Transactions on Ethereum are batched and placed in blocks, changing the state of the chain. Simply put, each transaction occupies some space in the block and contributes to block size and state size.In Ethereum's current Proof of Stake system, validators are selected to propose blocks at specific times rather than racing to solve puzzles. There are no 'uncle blocks' or propagation races—validators simply receive rewards for correctly proposing and attesting to blocks, with penalties for improper behavior.

Block gas limit keeps state size and uncle rates in check. It limits the maximum gas allowed in a block. There’s a limit to how many transactions can be done in a block. This means there’s an upper limit to “supply” on Ethereum transactions in a day. The demand side creates the market, where users determine how much they will pay per gas unit. Miners will always select transactions with the highest gas fees. 

To manage extreme demand more gracefully, Ethereum includes a fee ramping mechanism. This mechanism introduces several parameters that regulate how fees increase during times of high block utilization. First, there’s a threshold of block usage that must be surpassed before ramping begins. Once this threshold is crossed, the base fee can start to increase, but it does so at a limited rate per block. After the peak, there's a defined number of blocks during which the fee will remain elevated. Following that, a decay rate gradually reduces the base fee until it stabilizes, unless demand surges again. This dynamic adjustment helps smooth out gas fee volatility and prevents sudden spikes from persisting indefinitely.

How to Calculate Gas Fees (+ Example)

As discussed, the gas fees are a product of gas consumed and gas price per unit. In August 2021, Ethereum changed its calculation of gas fees to include base and priority fees. 

On Ethereum, gas is broken up into various components, including: 

• Base fees. Network charges these minimum fees to perform your transaction. 
• Priority fees. The tip you pay to the builder or validator includes your transaction. 
• Max fees. The maximum fees beyond which you don’t want to go. 

The new formula to calculate gas fees becomes: 

Gas Fees = Units of gas consumed x (Base Fee + Priority Fees)

Suppose you’re paying a friend 3 ETH. Assume the base fee is 12 gwei, and you offer a tip of 5 gwei. The gas fees will become:

3 x (12 + 5) = 3 x (17) = 51 gwei

This equals 0.000000051 gwei. Therefore, the total would be 3.000000051 ETH. 

However, the gas calculation isn’t as simple if you’re transacting on an L2 chain. When a transaction happens on L2, several days later, it is written down on L1. Chains like Optimism take seven days; for ZK chains, it takes a few hours.  Consumers execute a transaction on L2 and pay a fee; sometime later, the L2 pays a few out to the L1 network. When transacting on L2, there are two separate fees you need to be accounting for. 

If you’re transacting on L2, what you do is make the transaction more efficient by batching it effectively. The fees that L2 would give L1 are time-offset and are therefore increasing. Usually, the fees in L1 increase faster than they decrease. 

Before 2020, gas fees were nominal and used to spike occasionally. However, after January 2020, gas began climbing up as the network attracted new users. When PoS was implemented, gas fees climbed up to $30 per transaction. 

How to Avoid High Gas Fees

You get a lower gas fee estimate if you transact when the network isn’t too busy. Another way is to use Layer 2 solutions or dApps for transacting. Taking activity off the main chain doesn’t cost much and keeps your gas expenditure low. 

Recently, Ethereum gas fees dropped to approximately $0.04 per transaction, reaching a five-year low. According to the media, this happened after Vitalik, the Co-Founder of Ethereum, vowed to fix gas fees three weeks ago. The gas fees for Ethereum have been huge in the past. 

The table above clearly shows that even when gas fees for Ethereum have dropped considerably, L2s are still 10x to 100x cheaper. 

Why Do Gas Fees Matter?

Gas fees impact smart contract development. If the fees are high, smart contract deployment is expensive, especially for those with complex logic and several instructions to execute. 

Below are a few factors that are responsible for high gas fees.  

• Limited block capacity and priority. Ethereum or any other blockchain ecosystem has limited computational space. NFT drops, DeFi surges, or any other period of high activity, the demand for block space increases. Due to this, bidders tend to bid higher gas fees to get their transactions processed faster. 
• Transaction complexity. The more complex a transaction is, the more gas it consumes. During network congestion, the transactions become more expensive as you compete for a limited space. 
• Protocol-level enhancements: EIP-1559 adjusts transaction fees, and EIP-2929 increases gas costs for certain storage operations. These enhancements affect how gas fees are charged. 

DeFi applications require chains that charge lower gas fees while facilitating high-speed transactions. The Sei blockchain network delivers this through its high-performance L1 chain optimized for lower gas fees and higher throughput, making it ideal for DeFi applications without sacrificing decentralization.

Jay Jog, Co-Founder of Sei Labs, mentions Bancor, a DeFi project on Sei, and confirms they have been getting the most activity on Sei because of cheaper gas fees compared to other blockchain ecosystems where they launched the project.

Sei’s latest GIGA upgrade takes the ecosystem closer to the stage where developers can create complex on-chain applications. Sei v2, the first parallelized EVM, facilitates fast consensus and optimized storage. This delivers a high-performance EVM, empowering developers to scale while fully compatible with Ethereum's infrastructure. 

Learn more about Sei’s latest GIGA upgrade.

Toward Seamless Scalability

With recent Sei upgrades, the fastest parallel blockchain has become a go-to choice for the community to build customer-facing applications. In 2025, Sei is focused on creating an environment where technical innovation meets practical adoption. 

In the coming weeks, Sei will announce specific programs for builders, creators, and contributors in the network. Follow the Sei Network on X to stay tuned for new updates.

With clearer regulatory guidance in the US and significant performance upgrades like the Sei Giga, it’s time to accelerate building on Sei. It’s more scalable and cost-effective for gas and facilitates a high-speed network. 

Check out the Sei onboarding guide and get started.