Understanding Gas Fees

Understanding Gas Fees

If you’ve ever tried sending crypto, you’ve probably come across something called gas fees. Maybe you wondered why you had to pay anything at all, especially when what you're doing feels as straightforward as sending a token. Or maybe you were confused about why you need ETH to send USDC, instead of just using USDC.

This guide is here to clear up that confusion and help you understand what gas fees are, why they exist, and how they work across different blockchains.

What You’re Actually Paying For

Gas fees are the cost of using a blockchain. Whenever you send tokens, mint NFTs, or engage with a smart contract, you are requesting the network to execute a task for you, and these tasks demands energy and computing power.

What distinguishes blockchain from platforms like PayPal or Venmo is the absence of a centralized authority managing the operations. Instead, the system relies on thousands of independent computers worldwide, all of which agree on transaction details including who sent what, and when it was confirmed, and they don’t operate for free.

Gas fees are how the network rewards them for processing and validating transactions while keeping everything secure and running smoothly.

The cost associated with actions on the network can also play a protective role. If sending an unlimited number of transactions were free, malicious actors could overwhelm the system, degrading performance for everyone. The requirement of payment compels users to reconsider submitting unnecessary or harmful transactions.

What Determines the Cost of Gas

Gas fees are variable, influenced by several factors that may change rapidly.

Gas Price:

This is the amount you are prepared to pay for each unit of work completed. You can think of it like tipping; offering more may result in your transaction being processed faster.

Gas Limit:

This establishes the maximum amount of work you permit for the transaction. Different transactions require varying levels of effort. For instance, a simple token transfer uses less gas than a complex smart contract. The total fee is calculated by multiplying the gas price by the actual gas utilized.

Network Activity:

Increased traffic on the network elevates demand, which leads to higher fees as users compete for quicker transaction inclusion.

Why You Need ETH to Send USDC

This is one of the most common points of confusion for people new to crypto. You’re trying to send USDC, so naturally you expect to pay the network fee in USDC as well. But instead, your wallet asks for ETH.

Why is that?

To make sense of this, you must first understand the difference between Ethereum and ETH.

Ethereum

is a blockchain network. Think of it as a vast digital highway utilized by other applications and tokens. It is the base layer upon which everything else is built.

In contrast, ETH is the native currency of this network. Each blockchain has a designated token that users employ to cover network-related actions. For Bitcoin, this token is BTC; for Ethereum, it is ETH. When interacting with Ethereum - be it sending a token, exchanging assets, or minting an NFT - you are utilizing Ethereum’s resources, which uses ETH as payment.

USDC on the other hand, is a stablecoin token developed by a company named Circle. It’s created following Ethereum’s token standard, operating atop the Ethereum network. Despite USDC being the token in transit, the transaction relies on Ethereum's infrastructure for processing and confirmation.

This is why you need ETH. When you send USDC on Ethereum, you are using Ethereum’s infrastructure. The fee for using that infrastructure must be paid in ETH. The network does not accept USDC or any other token for gas fees.

Notably, USDC can also exist on various other networks. Transfers can be on Solana, where fees are payable in SOL, or on Polygon, where costs are settled in MATIC. The key principle remains: regardless of the token being transferred, fees are always paid using the native currency of the utilized chain.

Bringing It All Together

Gas fees might feel like an annoying extra step, especially when you’re just getting started, but they serve a real purpose. They keep the network secure. They ensure that people are compensated for maintaining the system. And they help manage activity on the blockchain so that it stays reliable and fair for everyone.

Once you understand how gas fees are calculated and why they exist, it becomes easier to plan around them.

You don’t need to master the technical details to use crypto effectively. You just need to understand the basics. And now, you do.