Are you trying to decide which cryptocurrency to invest in? Well, it’s more challenging than choosing a gazillion options and hoping for the best. To make the best decision, you must know when gas fees are the lowest. I’ve compiled a list of information to help you make an informed decision!
If you are an investor in cryptocurrencies, you should know that certain times of the day and days of the week are more optimal than others for transmitting transactions through the Ethereum network.
When is the optimum time to buy, sell, and send transactions on Ethereum, and how can one optimize their behavior to pay the least gas fees possible? In this article, we will analyze these topics to assist you in making more informed trading decisions regarding Ethereum and the assets that make up its ecosystem.
What are Ethereum gas fees?
Gas is the price you pay when anyone wants to send transactions through the Ethereum network. Similar to how a website might have a “site” fee, etc., this is the term used for an amount paid by someone who wants to use the Ethereum network to perform some action.
The gas fee is paid in ETH. Unlike other networks, however, there are currently no fixed fees for sending transactions on Ethereum. These fees are dynamically calculated based on the transaction size that needs to be sent and its particular circumstances.
Regardless of the amount, the same gas fee is used for all Ethereum transactions. It is only necessary to pay for sending a transaction greater than or equal to 1,000 bytes. However, you will pay an additional fee for each byte beyond the required 1,000-byte threshold once you pass this threshold.
Gas costs on Ethereum reflect an essential expense that must be incurred to keep the network operational and process transactions. There is a cost associated with every ETH transaction, and this price must be paid in gas.
The miners decide on the price of gas fees, and it varies depending on the market’s supply and demand at any given time. The cost of Ethereum gas is dependent on the following:
- the current level of interest in gas
- the necessary amount of computing power for the processing of smart contracts
- the total number of transactions as well as the dimensions of the smart contract that you like to be carried out
When investors in cryptocurrencies wonder when Ethereum transaction costs are at their lowest, they are looking for the times and techniques to make transactions on the Ethereum network while paying the least as possible.
If the amount of gas available is insufficient, transactions on Ethereum may fail. This indicates miners need more motivation to accept and add that transaction to the blockchain record.
Now that you know how the Ethereum network operates and the cost you must pay to put smart contracts into action let’s investigate the primary factors contributing to inflated gas fees.
Reasons for high gas fees:
Transactions on the Ethereum network cannot be processed without paying gas fees. On the other hand, when there is a lot of activity, the gas fees and the transaction success rate can drop dramatically. When is that possible, and what factors contribute to it happening?
DeFi (Decentralized Finance):
This is one of the biggest factors contributing to high gas fees. Decentralized finance (DeFi) is the term used for the blockchain-based financial products that are popping up in 2018. Many of these products could be more proven, yet they are making a lot of news and attracting a lot of investor resources. The so-called “DeFi” products include decentralized exchanges, tokenized assets, and even lending platforms.
Ethereum was the first blockchain to include smart contracts when it was released in 2015. Developers were then able to create apps that did not require centralized control. Because of the growing number of applications created on top of the blockchain, the network quickly became congested, which led to an increase in the price of gas.
The price of ETH gas grew more than 20 times by 2020, and a key driver of this growth was the cryptocurrency project known as DeFi. However, gas prices tend to drop during weak markets when fewer investors are actively moving their money around.
Ethereum is an innovative network, yet, it is still based on the proof-of-work (PoW) consensus mechanism, a basis that does not permit scaling and is a restrictive foundation. Ethereum can perform an average of 15 transactions per second, and the gas price increases with the amount of data that can be transferred across the network.
NFTs (Non-Fungible Tokens):
One of the most popular apps and platforms on Ethereum is CryptoKitties. At this point, most investors can easily see a link between the popularity of this application and the price of ETH gas. Many investors are buying, selling, and breeding unique NFTs (non-fungible tokens) on this app, and all these activities require a considerable amount of gas to complete.
NFTs include assets like ERC-721 tokens and non-fungible items such as clothing, sneakers, or other collectibles. These assets must be verified, authenticated, and added to the Ethereum network.
In addition, If a user wants to use any of these NFTs for a specific purpose, then a considerable amount of gas will be needed to complete the transaction.
ICO (Initial Coin Offering):
ICOs have become a popular way for startups to raise money because of their high popularity among investors. When the cryptocurrency markets were at their height in 2017, more than 100 new tokens were created daily, and this policy has not changed in recent years.
More companies are willing to launch ICOs because it is a quick and effective way to raise capital. An ICO can be an effective strategy for startups that want to create their token.
Ethereum 2.0 promises to lower network fees.
The price of Ethereum has surged in tandem with the growing number of decentralized applications (DApps) deployed, and it was important to find a mechanism to scale the platform.
The Ethereum Foundation announced an update for the blockchain, including a proof-of-stake (PoS) consensus mechanism. This is excellent news. Ethereum 2.0 is the name of the revised version, and it is anticipated that all modifications will be finished by the end of 2022. Staking Ethereum, a process that will eventually take the role of miners and is presently available to investors and supporters of Ethereum can help accelerate the development of ETH 2.0.
The upgrade to a PoS consensus will result in a significant reduction in gas expenses and will address the scalability concerns. According to the Ethereum development team, ETH 2.0 can process 100,000 transactions per second.
The team also mentioned that this new iteration of the blockchain would be able to accommodate a larger number of users, which will reduce transaction fees even further.
The team plans to make these changes within the next 3 years, and the Ethereum Foundation has already begun in the preliminary development stages. Ethereum needs a nimble transition plan to take over Bitcoin as the world’s leading cryptocurrency.
Conclusion:
Hopefully, this article increased your knowledge about gas fees on Ethereum. This knowledge will be essential once ETH 2.0 is launched. The high gas fees and low success rates are critical factors in the operation of a blockchain platform, and it is important to identify the variables that contribute to these changes.
It will also be essential for investors to understand how these developments will impact the price of ETH in the long term. As always, we welcome constructive feedback or opinions about our comments and thoughts on this topic.
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