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NFT GAS FEES: SCALABILITY ISSUES ON A POPULAR BLOCKCHAIN

Think about it, the biggest marketplaces for NFTs, OpenSea, Foundation, Rarible, Mintable, Nifty Gateway, Superare, and others are on Ethereum. Now at the time of writing this article, data from Crypto.com shows that the average Ethereum gas fee paid for transactions on Ethereum is around $45.

That means if I was to send you $100, I should be ready to pay that extra amount which is quite insane, especially if you consider that you will end up paying around the same amount for larger transactions. Minting NFTs puts a heavy demand on the network which makes it expensive to mint NFTs on the most popular blockchain network. To resolve this challenge, artists who want to launch their NFT collections, and traders who have to move funds from time to time, have resorted to other blockchains to avoid the insane fees for processing transactions on Ethereum.

The forgoing has led to a lot of questions in the cryptocurrency space, asked by novice and experts alike who keep wondering what the exact problem is with the most popular blockchain network. In this article we will review all about the gas fees, gas prices, why you have to pay gas in the first place, and why the total gas fee on Ethereum has been skyrocketing lately. We will explore NFT gas fees and how it is calculated, and how you can avoid paying those huge gas fees for simple Ethereum transactions.

What is a Gas Fee?

Think of gas fees like the fuel needed for the vehicle called Ethereum to work. As you may know, Ethereum is a supercomputer, and the basic unit of computation on this supercomputer is gas. Gas on Ethereum protects the network from unnecessary computation, spamming, and hostile loops, gas also limits the number of computational steps required for code execution.

To avoid confusion, we will start by explaining that the basic unit of the transaction on Ethereum, gas, is measured in Gwei. Gwei (gigawei) is a billionth of an ETH or 0.000000001 ETH. The smallest form of ETH that can ever exist is Wei, named after one of the pioneer scientists of blockchain technology, Wei Dai who published the whitepaper for bmoney a project that inspired Bitcoin and Ethereum.

Transactions on Ethereum vary in cost if you consider that each gas represents some sort of computation on the Ethereum supercomputer. So sending funds on Ethereum, for example, will cost less than launching a smart contract for a decentralized protocol or minting an ERC721 or ERC1155 standard NFT. The complexity of Ethereum transactions which lead to high gas fees is accounted for by the limited block space on the Ethereum blockchain. An increased gas fee like we mentioned earlier is, therefore, a result of increased pressure and demand on these spaces.

High gas fees have become an issue on Ethereum lately, but like cars use fuel to work properly, Ethereum needs gas to protect the network and keep it running. The best we have seen from updates aimed at resolving gas fees lately are implementations that make it more predictable instead of removing or reducing it together. So NFT gas fees are important for artists who want to launch their non-fungible tokens on Ethereum and the cost is as close as possible to the energy consumed by such transactions.

How are Gas prices determined?

The simple mathematical calculation for gas fees is arrived at by multiplying the gas limit by the gas price in Gwei. In a simple transaction between Alice, a sender, and Bob the recipient of the funds, Alice sends 2 ETH to Bob and going by the basic computation, Alice is expected to pay gas fees along with the original ETH amount she is sending to Bob. The amount expected from Alice can be calculated by multiplying the gas limit which is set at 21,000 Gwei by the gas price per unit at the time of the transaction which is 100 Gwei. Alice, therefore, spends 2.0021 ETH. The 2ETH goes to Bob while the miner that approves Alice's transaction gets 0.0021 ETH.

Gas makes Ethereum efficient in how it allocates scarce resources on the network, and gas price is determined by the demand for resources on the network. Users executing transactions on Ethereum pay based on the size of the contract and the amount they are willing to play. You can choose to make your transaction approved faster, for example, by paying high gas costs, or normal by paying the average gas cost while slow transactions are executed at the exact gas limit as explained earlier. Slow transactions usually cost lower gas fees since the cost is calculated using the gas limit.

The way gas fees are being calculated has changed since the Ethereum London upgrade. The major changes in gas fees occasioned by this development are a more predictable gas price for transactions, faster confirmation or adding of transactions to blocks and cutting the amount of ETH issued by burning some of the fees paid for Ethereum transactions.

Following these updates, Ethereum users now pay a base fee defined by the smallest amount per unit of gas needed to add a transaction to a block. The amount is arrived at by calculating the demand for block space on the network at the time of the transaction. Since this base fee will be burnt, Ethereum users must pay a tip which is automatically added by most wallets to compensate miners for verifying transactions. The formula for arriving at the gas fees thus changes to include this. So that we have transaction fee = gas limit * ( base fees +tips).

If we go back to our previous example of Alice and Bob, assuming Alice adds a priority fee of 20 gwei, the cost of the transaction will thus be calculated by gas fees gas limit: 21,000 * (100+20) + initial funds to be sent, i.e 2ETH = 2.0021002 ETH. The miners will receive a base fee given by gas limit per unit of 21,000 * 20/1,000,000,000 = 0.00042 ETH while a base fee of the same amount will be burned. To avoid worries about paying above the base fee when the transaction is executed, Alice can also set a maxFeePerGas defined by the base fee + priority fee + refundable amount. The max fee is the highest amount Alice is willing to pay for a transaction.

To understand this properly it is important to explain the block size. Block size is the maximum gas or computation that can be processed at once by the Ethereum virtual machine. During periods of high transaction volumes on the Etheeum network, the maximum block capacity is reached and it is impossible to verify any more transactions on Ethereum. Users have to wait till the volume goes down for their transactions to be verified. Another important characteristic of these periods is a high gas fee owing to the increase in demand for block space on the Ethereum network.

The waiting time to get included in a block amounts to poor user experience on Ethereum. To fix this, recent upgrades introduced a target block size defined by the number of transactions in gas that can be verified in a block. The equilibrium block size is set at 15 million gas, reached when the transaction for the current block gets to this amount. To reach this equilibrium block size, the network goes through a process known as tâtonnement.

According to the demand on the Ethereum network, the block size keeps increasing from equilibrium until it reaches a limit of 30 million gas per block. As the block size reaches 30 million, the base fee of the next block is increased as much as the block size exceeds the target block size set at 15 million gas. If demand for transactions on the current block is not up to the target block size, the base fee of the next block will be reduced proportionally which will lead to lower gas fees paid for transactions on the network.

Following the determination of the fees on the previous block by the size of the current block, we can reach a fair mechanism for calculating the base fee. The base fee is determined by the size of the previous. In transactions, it serves as the minimum about that must be paid to get included in an Ethereum block. As demand for block space on the network increases above the target size of 15 million gas discussed earlier, the base fee of subsequent blocks increase.

The increase in base fee does not occur disproportionately as a set increase of 12.5% per block is required from the point where the target block is exceeded. So calculating from the max block limit of 30 million gas, if the current base fee is 100 Gwei, we should definitely expect an increase to 112.5 Gwei in the coming block. Such an increase will also affect the transaction fees. Base fees are burned for each transaction on the Ethereum network, following recent updates. The reason for this is to keep Ethereum deflationary as the demand increases while the circulatory supply of the token keeps decreasing.

It is also important to explain priority fees, and gas fees. Priority fees are actual fees are fees paid to miners on the Ethereum network. It is important to understand that priority fees are different from block rewards that miners get from mining blocks irrespective of anything else. With priority fees, miners have an extra incentive to include blocks of transactions to the Ethereum network. Priority fees also help miners include transactions with higher fees denoting higher priority on a block before others. The process of securing space in blocks, therefore, becomes competitive as miners are motivated to earn the tip passed to the block rewards they would normally earn. When users specify a maximum fee they are willing to pay for a transaction. The transaction will be executed in so far as the max fee is more than the base fee plus the tip. Setting a max fee reduces the burden of transactions on users. Most cryptocurrency wallets compute your transaction fee as the sum of the base fee plus priority fee or tip.

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Why High Gas Fees?

Ethereum is the most popular blockchain for smart contracts, and most blockchain software developers build their projects on Ethereum. Imagine that each of these smart contracts can be entire exchanges, NFT collections, DAO's, and Metaverses. Each of these distinct protocols or projects can warrant millions of transactions daily.

As the users of these projects execute transactions and other processes on the same blockchain, the maximum block limit is quickly reached. As we explained before if the block passes the floor target of 15 million gas the fee for subsequent block increases to mark the increase in demand for transactions on the Ethereum blockchain. Users who intend to get their transactions approved faster also pay more tips making the process of getting included in a block far competitive. It is possible to find comparably low gas fees on certain days of the week marked by decreased activity on the blockchain. Although, transactions on the blockchain can quickly take up space leading to higher gas fees in the long run.

Do NFTs really need Gas for functioning?

Like every other transaction on the Ethereum blockchain, NFTs need fees to be minted. Minting an NFT means creating a smart contract for the respective files or files you are trying to add to the blockchain. The same gas expenses mechanism calculated to determine transaction fees is crucial for NFTs too. To have your digital assets listed on a platform like OpenSea with a set market price, you must pay the corresponding gas price determined by your computation demand on the Ethereum network.

Transaction fees and gas prices for NFTs can be quite expensive. Whether you find an NFT platform to list your NFT or create a smart contract for your NFT, you must ensure proportional gas prices to the computation, and you may want to add a tip even though gas prices are low at the time of your transaction to incentivize miners and avoid stuck transactions. An NFT collection can reach thousands of files that you want the blockchain to hold a transaction hash for to show that you have secured the gas space and performed the computational effort required to process the transaction and have your asset on the platform or NFT marketplace.

Those who purchase your NFT will equally pay gas fees although the fee is meant to incentivize miners so you are not entitled to any of it. The price for minting NFTs can range from $100 - $1000 in ETH depending on the size of the file or the previous block before the block used for minting the NFT. There is money in selling NFT but the cost of gas often times discourages people from minting their art on Ethereum.

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How can you avoid paying high gas prices?

With several years of experience working on Ethereum and other blockchains at a highly technical level, you can trust our blockchain developers to deliver excellent development of your application on layer 2s. A profound grasp of the basics of blockchain architecture is needed to build applications on layer 2 scaling solutions which is why you can count on our blockchain consultants to do your job. Other blockchains may also require specialists in diverse programming languages like Rust or Corda. Working with a blockchain development company will save you the hassle of having to worry about who develops what or the possibility of future technical issues.

Thanks to cryptography and blockchain technology, innovations in the crypto space are moving at a break-neck pace. As soon as the problems with Ethereum were spotted, intelligent researchers started coming up with alternative blockchains to resolve the problems. The challenge in this, however, is a problem identified by the founder of Ethereum, Vitalk Buterin. It is now popular among crypto writers and researchers and it is known and the blockchain trilemma.

According to Vitalik, one thing must be sacrificed to achieve the other and there is yet to be a blockchain that promises everything no matter how excellent it claims its architecture was built. There is either everything else except security, scalability, or decentralization. According to him, as a blockchain increasingly satisfied one of these features, it moves some steps away from the others, and this is clear from what we have seen so far.

Ethereums solution to achieving a secure, decentralized, and scalable network is zkrollups and layer 2 scaling solutions. Networks like Optimism, Arbitrum, Polygon Matic, ZKsync, and others allow users to mint NFTs and perform Ethereum transactions at a significantly lower fee. Ethereum's native currency exists on these chains, and there is lower network congestion as they process transactions. The energy consumption on scaling solutions is also significantly low and an NFT artist can benefit a lot from the same proof of stake model blockchain and NFT marketplaces offered by Ethereum.

Another good news is that there are other alternative artists and NFT creators have resorted to, to avoid the high demand and gas fees on Ethereum as well as the growing computational power are separate blockchains. Solana, Avalanche, Harmony One, Terra, Tezos, Klayton, and others are blockchains that have collectively been dubbed the Ethereum killers. These blockchains use novel consensus algorithms that are more powerful than Ethereum, and some of them maintain security while offering reduced computational power consumption and costs. You can do your research to find out You can get your NFT on any of these platforms by consulting with an NFT development company or NFT Marketplace developer and spend less computation power to do the same thing you would have done on Ethereum.

NFTs on Solana, for example, are comparable to those on Ethereum and the prices for transactions are as low as a fraction of a cent. There are NFTs on the blockchain today that is as expensive as those on Ethereum and mass adoption is growing on Solana. The money is not the sole factor pulling people in on Solana. It is also easier to use, and users have less to worry about. The low fees also mean that buyers can easily pay without having to think again about the possibility of reselling in the face of the high fees.

Ethereum

Conclusion

In this article, we have talked about gas fees in detail. If you have read up to this point you will notice that we differentiated gas fees from base fees and transaction fees which can all be arrived at by different calculations. We mentioned that current updates on Ethereum had made being included on a block more competitive as there are lots of users vying to be included at any given time. We mentioned the block size and explained that there is a target block size of 15 million gas and a maximum block size of 30 million gas. Most NFT trading platforms are on Ethereum.

When you experience high fees on Ethereum, it most likely means that your transaction has been included in a block succeeding a block that exceeded the target block limit of 15 million gas. We discussed why the gas fee is important, mentioning that it helps to secure the Ethereum network from arbitrary transactions since computation is measurable and expensive. The lowest unit of the transaction on Ethereum is Wei but the most common unit you will see is Gwei, which means a Giga Wei or a Wei multiplied by a billion. 1 gwei is a billionth of an ETH, and if you use most of the popular Web 3.0 wallets you may at some point be asked to select your preferred transaction fee in Gwei.

Transactions on Ethereum as also divided into fast, slow, and medium from the user side of some wallet applications. The simple logic behind this is that these wallets deduct a higher tip from their users to incentivize miners to mine transactions with higher tips faster. Miners who know about these can decide on what to sacrifice by selecting the normal option if they are willing to allow their transaction to get verified after a long wait period.

We rounded off by talking about the alternative based on the Ethreum root chain that can offer users the ability to perform the same transactions they would have done on Ethereum at significantly lower costs. There are also independent blockchains that are more scalable and secure at the moment where the artist can create their digital arts without worries about transactions and other problems associated with Ethereum.

The blockchain space is still evolving and there are plans underway to make the Ethereum mainchain more scalable, but such updates are yet to be implemented on-chain. If you are looking forward to creating your NFT project, you can reach out to us at Rejolut for perfect minting, and deployment of needed smart contracts on the blockchain.

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