FUNDAMENTALS OF CRYPTO
Crypto Gas Fees Explained, What They Are, Why They Exist, and How to Reduce Them
If you have ever sent crypto, swapped tokens, or interacted with DeFi, you have paid a gas fee.
Gas fees are one of the most misunderstood parts of crypto. Many people assume they are random, unnecessary, or even a scam. In reality, gas fees are a core mechanism that keeps blockchains secure, functional, and decentralised.
Understanding how gas fees work helps you avoid overpaying, choose the right networks, and transact more efficiently.
What Are Crypto Gas Fees?
A gas fee is the cost paid to process and validate a transaction on a blockchain.
When you send crypto or interact with a smart contract, your transaction must be included in a block. Validators or miners prioritise transactions that pay higher fees, because fees act as an incentive to secure and operate the network.
In simple terms:
- Gas fees pay the network to do work
- More complex actions cost more gas
- Higher demand means higher fees
Gas is usually paid in the blockchain’s native token.
For example:
Why Gas Fees Exist
Gas fees exist for three core reasons:
Network security
Fees reward validators for verifying transactions honestly. Without fees, blockchains would be vulnerable to spam and attacks.
Fair resource allocation
Blockchains have limited block space. Gas fees help decide which transactions get processed first when demand is high.
Spam prevention
Every transaction has a cost. This prevents bad actors from flooding the network with meaningless transactions.
Without gas fees, decentralised networks would not function reliably.
How Gas Fees Are Calculated
Gas fees are not decided randomly. They are calculated based on three main factors.
Transaction complexity
A simple wallet transfer costs less gas than interacting with a smart contract or DeFi protocol.
Network congestion
When many people are transacting at once, users compete for block space. Fees rise during high demand periods.
Gas price selection
On some networks, users can choose how much they are willing to pay. Paying more usually means faster confirmation.
On Ethereum, fees are typically made up of:
- A base fee set by the network
- An optional priority fee (tip) paid to validators
Why Gas Fees Fluctuate So Much
Gas fees fluctuate because blockchains operate in real time and have limited capacity.
Every block can only include a certain number of transactions. When demand for block space increases, users compete by paying higher fees to get their transactions processed faster.
Common causes of sudden fee spikes include:
- NFT mints that attract thousands of users at once
- Major market moves that trigger mass buying, selling, or liquidations
- Popular DeFi launches, upgrades, or incentive programs
- Airdrops that cause users to rush to claim tokens
- Network disruptions or congestion due to technical issues
Because transactions are prioritised by fee size, users who are willing to pay more are processed first. This auction-like system is why fees can rise sharply during peak activity and fall quickly when demand eases.
On networks like Ethereum, this effect is more visible due to consistent high usage. When activity slows, fees naturally drop without any manual intervention.
Which Blockchains Have the Highest and Lowest Gas Fees
Gas fees vary significantly depending on the design and usage of each blockchain.
Higher gas fee networks
- Ethereum mainnet generally has the highest fees due to heavy usage and strong decentralisation
- Bitcoin fees can spike during periods of congestion, especially when block space demand increases
- Older Layer 1 chains with limited throughput may also experience higher costs during peak activity
Lower gas fee networks
- Ethereum Layer 2 networks such as Arbitrum, Optimism, and Base offer much lower fees by processing transactions off-chain and settling them on Ethereum
- High-throughput Layer 1 blockchains like Solana, Avalanche, and Near are designed for low-cost, high-speed transactions
- Newer chains often prioritise scalability, resulting in minimal fees for everyday use
Lower fees do not automatically mean a better blockchain. Trade-offs often exist between cost, decentralisation, security, and network maturity.
Choosing the right network depends on what you are doing, how much value you are transacting, and how important security and decentralisation are for that activity.
How to Reduce Crypto Gas Fees
There are several practical ways to reduce gas costs.
Transact during low activity periods
Fees are often cheaper during off-peak hours and weekends.
Use Layer 2 networks
Ethereum Layer 2s significantly reduce fees while keeping strong security.
Adjust gas settings manually
Advanced users can lower priority fees when speed is not important.
Batch transactions where possible
Some wallets and protocols allow multiple actions in a single transaction.
Choose the right blockchain for the task
Not every transaction needs to be done on Ethereum mainnet.
Are Gas Fees Tax Deductible?
In many jurisdictions, gas fees may form part of the cost base of a transaction. This depends on how the transaction is classified and local tax rules.
Gas fees should always be recorded accurately, especially when trading, swapping, or interacting with DeFi.
For Australians, gas fees are typically relevant when calculating capital gains or losses. Always keep detailed records and consult official tax guidance or a qualified professional.
For more details on calculating capital gains or losses in Australia, check out our “Capital Gains Tax for Cryptocurrency in Australia” educational resource.
Final Thoughts
Gas fees often get framed as a problem. In reality, they are the compromise that removes the need for middlemen entirely.
Instead of paying a bank, payment processor, or platform to move your money and take a cut, you pay the network directly to settle the transaction. There is no third party deciding whether your transfer is allowed, delayed, or reversed.
That matters.
A gas fee is transparent, predictable, and tied to real network demand. You know what you are paying and why you are paying it. In many cases, paying a few cents or even a few dollars in gas to prioritise a transaction is still cheaper and faster than relying on external processors that charge percentage-based fees, add settlement delays, or impose restrictions.
Gas fees also give users control. If speed matters, you can pay more. If it does not, you can wait and pay less. That flexibility does not exist in traditional systems where fees are fixed and dictated by intermediaries.
Seen this way, gas fees are not friction. They are the middle ground that enables decentralised systems to function without giving up control to a gatekeeper.
Once you understand that trade-off, gas fees stop feeling like a tax and start looking like the cost of financial autonomy.
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