Ethereum Gas Fee Explained — What Is It And Why Is It So High?

Ethereum’s gas fee plunged to low levels when the second biggest cryptocurrency hit an all-time high above $4,800 Tuesday. But traders were reluctant while buying Ether, expecting a spike in the fee.

With trading volumes surging to $19.1 billion at the time of writing and the token's market cap hovering around $568 billion, Ethereum’s gas fee is currently at $17.14. This is lower to Monday's average of over $27, which was already down by 11% from Nov. 7.

However, Ethereum’s gas fee is still higher compared to the ETH killer networks like Solana and Tron. Before diving into the reason behind the high gas fee, one needs to know what exactly is the gas fee.

The gas fee is the price that one needs to pay to confirm a transaction executed on the Ethereum blockchain network. It is what is called transaction fee in simple terms.

Gas fees are made by users to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain. The "gas limit" is the maximum amount of energy that a user is willing to spend on a particular transaction. Gas prices are mostly measured in fractions of Ether tokens termed ‘gwei’ and are responsible for executing smart contracts and working decentralized applications on the network. Gwei is also called nanoether, or simply nano -- because it denotess the ninth power of the fractional ETH.

Gas fees are dynamic, and determined by miners in accordance with the supply and demand. Miners can decline to verify a transaction if the gas fee is not acceptable to them.

Ethereum’s gas fees are high because of the congestion in the network and the ‘gas guzzlers.’ Gas guzzlers are applications that consume a lot of gas. According to Etherscan, the biggest consumers today are ENS token, Uniswap and Tether.

To compare, Solana's transaction fee is 0.000005 SOL, which is roughly $0.00123. Now you know why the ETH's gas fee is is a big barrier for users.

Rewinding to the month of May, Ethereum gas fees surged to all-time highs, above $100 per transaction, and verifications took a lot of time due to congestion in the network. Similarly, the release of the Time magazine NFT also caused a surge in gas prices where buyers had to spend almost four times as much on transaction fees as they did on the TIME NFTs themselves.

The gas prices for Ethereum dissuade a number of DApp and NFT projects from coming on the Ethereum network. However, it is hoped that the upgrades planned for Ethereum will cause a drop in the high gas fees.