Bottom Line on Ethereum Gas Fees
Strategic Truths about Ethereum Gas
- Based on demand
- Not all transactions cost the same
- Dynamically shifts up/down
- Transactions can get lost / denied
- Information is freely available if you have the right tools to become a Swami
It is important to understand how competitive your transaction is in the mempool and the key factors is determined by your cost and henceforth your expected timeliness of getting on-chain.
This is important especially when you have found that Gem and want to get in before the prices rises too quickly, new launched Tokens and if BTC is dumping and you want to get out of that alt-token into a stable-token.
What is Gwei?
Gas is typically priced in Gwei is a fractional unit of ETH where 1.0 ETH = 1,000,000,000 Gwei. Anytime you transact on Ethereum, there are a few common terms that you must understand, to determine the cost of a transaction:
- Gas: the computation units your transaction requires. More complex transactions require more computation and hence more gas
- Gas limit: the maximum amount of gas you are willing to spend on a transaction.
- Gas used: the actual amount of gas used to confirm the transaction.
- Gas price: the amount you are willing to pay for every unit of gas, denominated in Gwei.
- Transaction fee: the actual fee associated with a finalized transaction, equal to gas used * gas price.
- Gas block limit: the maximum amount of gas allowed in a block.
Not All Transactions are Created Equal
First things first now that we have the basic concept of what Gwei is, you need to know that not all transactions have the same gas requirements.
https://etherscan.io/gastracker
The more complex the transaction or the smart contract(s) it calls — the higher the associated fees. Yield Farming, has some of the highest fees because of this (little known fact, you don’t experience this until you try it for the first time).
How does the market price Gwei (aka gas)?
Think of gas as the base measure of the competitive marketplace for transaction settlement. The Ethereum mainnet block time is ~15 seconds on average. And every new block contains ~150 new confirmed transactions. It is important to understand that at any given moment, around 150,000 pending transactions are circulating in Ethereum’s global mempool.
With the mempool writing new blocks on average every 15 seconds, it brings a fresh, real-time marketplace involving around 150,000 pending transactions competing with one another to be one of the next ~150 transactions confirmed on-chain. It is important to realize if these transactions were finalized randomly, any given transaction would only have a 0.1% chance of being included in the next block.
But of course the world of tech is not random thus the mempool transactions are not finalized randomly. Everything is prioritized by miners based on their gas fee. The higher the gas fee, the more likely miners will include any given transaction in the next block.
For each new block, miners generate and revise new block templates identifying candidate pending transactions to be included. When a given miner successfully solves the next block, that block is broadcast to its peers on the network, and each of the transactions in its current block template become finalized.
How to set your gas price for your transaction?
When determining any given transaction’s gas fee, you must factor in:
- How long you are willing to wait to get your transaction confirmed,
- Current mempool competition, and
- The rate of change in gas prices.
If you are an Ethereum user, you are extremely sensitive to gas price fluctuations. Thus, for traders, overpaying means reduced profitability. But during a token launch on Uniswap…paying a higher fee means you’re more likely to get into that token when you want. For builders, gas fees can eat into protocol margins and disincentivize or even disenfranchise your users from transacting on your platform all together. On the flip side if you underpay for gas, several other results can happen to your transaction, such as delays (and hence increased slippage), failed transactions, stuck wallet addresses, and being manipulated (see details in our Strategic Truths for Ethereum Mempool).
Understanding that each time a new block is confirmed on-chain, miners immediately begin constructing the next block template consisting of the highest priority pending transactions. The competition for settlement begins anew in a characteristic stair-step fashion.
If you thought watching charts can be volatile, Ethereum gas prices are extremely variable and can quickly surge — meaning existing pending transactions can suddenly become underpriced and therefore noncompetitive. That is not good, and why it’s important to understand how long you are willing to wait for your transaction is key.
How long will it take for my transaction to get confirmed?
Counterintuitively, blockchain networks do not follow standard concepts of time. Instead, they measure forward progress in blocks.
A new block on Ethereum occurs around every 15 seconds. However, this hasn’t stopped miners from speeding through the next block in less than 5 seconds, or taking their sweet time upwards of 60 seconds. As you can see, extremely predictable to a normal person… So it’s time to retain our brains and rather than thinking about how long it will take your transaction to get confirmed, instead, think about how many blocks it will take your transaction to get confirmed.
How to become a Swami & Predict Ethereum Gas prices?
Thus, before we get technical you need to understand what is happening in the broader Crypto space and on the Ethereum blockchain for the day. Are there any new token launches or new farming events? What is happening with the BTC price action and even the time of day and week can all play into what is driving the gas prices.
So now that we understand our environment and the cognitive changes possible going to drive behavior of investors, traders and projects we need to look at the technical complexities.
There are many approaches to estimating gas fees, but the most common one involves looking at the last confirmed block to get an estimate of the gas fees. But as we have discussed above, the fee market for gas takes place in the mempool. The mempool is known to be volatile and downright chaotic on occasion.
If we rely on past block as your source of truth for gas price, your transaction is vulnerable to becoming underpriced and noncompetitive or overpriced and wasteful based on possible sudden changes in the mempool due to congestion.
To create a more predictable transaction experience, builders and traders can look to the current contents of the mempool to calculate transaction fees. However, gaining an accurate and complete view into of the current state of the global mempool can be difficult on your own as any single node contains an incomplete view.
Thus, we will need to leverage tools to help predict the future price of gas. Etherscan.io gives you an accurate current picture, but does not necessarily show you how prices are swinging up/down in the mempool itself. After extensive searching we ran across Blocknative that has established an infrastructure and mechanisms to better help predict Ethereum gas fees via its “Gas Platform and Gas Estimator” capabilities. These are available to us average folks, but if you have a favorite platform they might already have these capabilities integrated.
Strategic Truths about Ethereum Gas
- Gas Price is Based on demand
- Not all transactions cost the same
- Gas Price Dynamically shifts up/down
- Transactions can get lost / denied
- Information is freely available if you have the right tools to become a Swami
To my Yield farming friends…remember your transactions cost the most due to the complexity of the contracts you are engaging in to create your 1000%+ yields!
If you think Ethereum fees will remain high…think again with London and Berlin hard folks adding functionality to Ethereum such as EIP-1559 fixing fee rates will have an impact. We will look at these developments and others in follow-on articles on Strategic Truths about Ethereum!
