What are gas fees in crypto?

When you pay with a credit card, the business receiving the funds pays a transaction fee of usually around 3%. When you send a wire transfer or send funds other ways like Western Union, there are transaction fees.

The crypto equivalent is called gas fees. Gas fees are the transaction fees required to perform operations on a blockchain network. These fees are paid by users to incentivize miners or validators to process and validate their transactions or smart contracts. Gas fees serve multiple purposes, such as preventing spam or denial-of-service attacks, prioritizing transactions, and compensating network participants for their computational resources and effort.

The specific mechanism and terminology for gas fees can vary from blockchain to blockchain. However, in general, gas fees are calculated based on factors like the complexity of the transaction, the amount of computational resources required to execute it, and the current network congestion. Gas fees are usually denominated in the native currency of the blockchain, such as Ether (ETH) for Ethereum or Binance Coin (BNB) for Binance Smart Chain.

There are websites like https://etherscan.io/gastracker (for Ethereum) where you can check gas fees and look at historical gas fees to see if they seem like they are going up or down and which projects on the blockchain are using the most gas.

They estimate the type of transactions and estimated fees in ETH converted to cost in US Dollars for example below OpenSea: Sale (that’s if you buy or sell a NFT on OpenSea), Uniswap V3: Swap (that’s if you exchange one crypto for another on the Uniswap exchange), and USDT: Transfer is sending USDT crypto from one crypto wallet to another.

If you want to see the gas fees you’ve paid on Ethereum, you can connect your wallet to https://fees.wtf/#/ to see how much you’ve paid in Ethereum gas fees since the beginning of your crypto wallet.

On most blockchain networks, gas fees go to the miners or validators who process and validate transactions. These participants compete to include transactions in the next block by solving cryptographic puzzles and receive gas fees as a reward for their work and as an incentive to secure and maintain the network.

In some blockchain networks, like Ethereum 2.0, where Proof of Stake (PoS) is implemented, gas fees can also be distributed to people who stake their cryptocurrency. Validators who hold a certain amount of cryptocurrency and participate in the consensus process receive gas fees as a reward for validating transactions and maintaining the network's security and integrity.

It's important to differentiate gas fees from trading fees on centralized exchanges. Trading fees on centralized exchanges are charges imposed by the exchange for executing trades on their platform. These fees typically involve a percentage or fixed amount based on the trade's volume or value. Trading fees are charged by the exchange to cover their operational costs, provide liquidity, and generate revenue.

Gas fees on decentralized exchanges (DEXs) function differently. DEXs operate on blockchain networks and rely on smart contracts to facilitate peer-to-peer trading. When users interact with DEXs, such as executing trades or providing liquidity, they need to pay gas fees to cover the computational resources required to process their transactions. Gas fees on DEXs are directly related to the underlying blockchain's gas fee structure and vary based on network conditions and congestion (how many other users are trying to transact on that same network at the same time).