Oct 10 2022
What You Should Know About NFT Gas Fees
Ah gas fees. That last minute money drain that rudely surprises so many NFT enthusiasts and first-time creators. Nobody likes paying extra -
NFTs are expensive enough! But as we’ll see in this blog, gas fees are a necessity. We’ll cover that below, along with all the basics required to familiarize yourself with them. At the time of writing this, the Ethereum Merge had been proposing serious changes to NFT gas fees so we’ll cover those too. But before all that, we’ll need to outline the basics.
What exactly is an NFT gas fee?
Or rather, what are Ethereum gas fees? Because the majority of NFTs are recorded on the Ethereum blockchain. Defining a blockchain is probably best achieved via a quick YouTube search. Still, for the purposes of this blog, a blockchain is a new (ish) way of recording data that’s decentralized. I.e. there isn’t one central person/company/entity storing and controlling it. Essentially, it’s a very large spreadsheet of data that everyone can view.
For this shared spreadsheet of Ethereum data to be adequately updated and maintained, traditionally, a fair bit of computing power is required.
Validating and updating Ethereum transactions requires resources, with “miners” supporting the Ethereum network by using their computing power to record these updates (this process is called “proof of work”, a detailed explanation of which can be found
here). The gas fees are essentially a financial incentive to the miners. However, the validation process is changing, with Ethereum now having completed “The Merge” (more on that later), signaling a move from “proof-of-work” to “proof-of-stake”, whereby ‘miners’ no longer need to solve complex code puzzles to validate the network (a time-intensive, expensive and energy-consuming process), but instead can loan out or effectively “stake” their resources.
Any transaction/recording of data to Ethereum will require ‘gas’. That includes minting an NFT or sending some Ether (Ethereum’s native currency) to a friend. Think of it like a processing fee for a card transaction. Ether is also the currency you’ll be paying all gas fees in when using the Ethereum network.
Without gas fees, the Ethereum network, or any blockchain for that matter, would be left for dead since there would be zero financial incentive to update and maintain it. Gas fees are what keep the blockchain safe, functioning, and ultimately, valuable.
Why are Ethereum gas fees so high?
Ethereum has become a victim of its own success. A couple of years ago, before the NFT boom that began in 2020, gas was cheap since far fewer people were transacting on the Ethereum blockchain. Now NFTs and Web 3 activity have increased, which means demand for updating the Ethereum network is outstripping supply, the simple economics of which has pushed up gas fees by anywhere from a few dollars to a few hundred dollars.
Ethereum and NFT gas fees aren’t necessarily high all the time though. Prices vary thanks to these two main factors.
How many transactions are being made on the Ethereum network
How big the transactions are
It makes sense. If there are lots of people using the Ethereum network at the same time it’s essentially congested. And if there’s a large load to bear, then more fuel is needed to bear it. It’s a bit like surge pricing for Uber, but if Uber also charged for how large/heavy the cargo was.
Another potential cost involves paying an additional tip to make the transaction process quicker. Or you can set a higher gas limit to give your transaction priority over transactions with lower gas limits. “Gas wars” can occur where users fight over who gets their transaction processed next by raising their tip accordingly. If the final amount needed is below the set limit, then the difference will be refunded. Set your limit too low though, and your transaction can fail, wasting your gas fee completely.
To make NFT gas fees on Ethereum a little less offensive, the blockchain world has come up with an effective workaround. Polygon gas fees are minimal in comparison to regular Ethereum gas fees. This means it’s perfect for small time NFT creators that would otherwise face unaffordable costs.
Polygon is what’s known as a sidechain or Layer 2 solution. It runs alongside but separately from the Ethereum blockchain, recording transactions, bundling them together, and then updating Ethereum later on. This takes a huge amount of stress away from the Ethereum network. Polygon gas fees have a proof of stake consensus behind them, which, as we’ll see below, makes transactions even quicker.
Rollups like Optimism and Arbitrum can also help
These are both other forms of Layer 2 solutions. Both Optimism and Arbitum can help scale up the Ethereum network and improve its performance by lowering the time needed to confirm a transaction and increasing how many transactions can be processed a second.
Understanding how they work in detailis a little beyond the scope of this paragraph but to give you a quick overview, they’re called rollups since they roll up (i.e combine) multiple transactions into larger, less frequent batches. This makes them easier and more efficient to record to the main Ethereum blockchain.
The Ethereum Merge
On September 15th 2022, the long awaited upgrade to a new consensus mechanism began. This change saw a shift from the aforementioned proof of work model, to proof of stake. This change will eventually improve the efficiency, and scalability of Ethereum. However, for now, as we’ll outline below, this is only a change in how the network reaches consensus; as in how Ethereum validates transactions.
As we’ve mentioned, until now, Ethereum transactions were validated by a proof of work “mining” mechanism. One that requires a considerable amount of computing power and ultimately, energy. With proof of stake, miners are replaced by stakers: individual Ethereum users offering up their ETH as a “stake” in the network. When they do this, stakers validate transactions, i.e. they confirm that a transaction is legitimate and add the block to the Ethereum blockchain.
If you’d like a closer look into how proof of stake works
click here. Otherwise keep front of mind that proof of stake offers to be more (energy) efficient/sustainable, more affordable, more scalable, and arguably more secure. It’s also marginally faster, with the current merge taking new block publication from every 13.3 seconds to every 12 seconds.
What’s key to note though, is that this efficiency boost will only happen once “sharding” is implemented, and that won’t be with us until 2023. Sharding will take Ethereum from roughly 30 transactions a second to around 100,000 transactions a second. It works by creating parallel blockchains (so that there are 64 in total), which can be added to simultaneously, avoiding the bottleneck of adding consecutively to a single Ethereum blockchain. Until this is introduced, expect a continuation of the high gas fees that we’re used to.
How to lower your NFT gas fees
Until sharding enters the picture and Ethereum’s scalability dreams are fully realized, you’ll probably want to do everything you can to keep gas fees down. Here’s how.
Mint when the fees are lower
you can see, some days are cheaper than others. The best time for Ethereum gas fees can often be when most of America is asleep, Europe is just waking up and Asia’s workday is ending. If you don’t want to wait by your computer, then setting a level for the transaction to complete at when gas reaches that point could be an option. Naturally, make sure you watch the price and set your limit to something reasonable, otherwise, it could be rejected completely.
Use “collections” if you’re listing NFTs
This is the act of combining NFTs into a single package; get multiple NFTs without paying the gas price of multiple transactions.
Try “lazy” minting
Try this route if you want to add your NFT to the blockchain but don’t want any gas fees to be involved until someone actually purchases it. In this instance, the gas fees are usually paid by the buyer upon purchase. This is great if you want to test an NFT out and make sure there’s demand before you pay gas fees.
Use a different blockchain
As mentioned, there are currently blockchains offering minimal to no gas fees. Along with Polygon, the Wax blockchain and Flow blockchain are good options.
As a buyer or a seller, you need to consider the price of gas fees in relation to the final price of the NFT. Otherwise, your gas fee could wipe out any potential profits. This is why you should always ensure you keep an eye on recent prices and set limits accordingly.
At VerseProp, we want to give you every chance of success when it comes to your investments, and fully capitalizing on the
metaverse real estate land rush; that’s why our platform offers full transaction histories and analytics on any virtual land NFT bought on our marketplace, providing you with a clear picture of the investment as a whole, and allowing you to frame the gas fees within that context.
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