Just as there's no such thing as a free lunch, neither should you expect a free transaction in the world of business. Paying $5 to withdraw $20 from an ATM is one thing; getting a PNG of a penguin for $100 is another. A rather extreme example, yet to execute a transaction or carry out a service on the Ethereum network, a gas fee is sometimes necessary. And sadly enough, there's no way to get your gas fees back from the Ethereum network at the end of the month, unlike ATM fees.
Contrary to popular belief, gas fees have nothing to do with liquid fuels or the environmental effect of mining. Instead, it is the incentive paid to miners for entering or processing transactions on the blockchain. Consider it similar to the tip you would give to a waiter at the end of a dinner.
Due to the decentralized nature of blockchains, transactions are added and approved in the network blockchain by anonymous miners or validators. This is the pillar around which any transactional blockchain technology is built. Miners in the PoW system solve complicated mathematical challenges to validate transactions in exchange for Ethereum tokens. Miners may earn Ethereum tokens by mining Ethereum to get compensated in newly generated Ethereum tokens or by collecting Ethereum from users as fees for completing their transactions.
On the Ethereum blockchain, over three thousand decentralized apps are running, all of which want their transactions to be included alongside that of other Ethereum network users. However, there are only so many miners who could authenticate these transactions at the same time. As a result, the miners are forced to select a set number of transactions to approve. All transactions can't be confirmed authenticated at the same time since the energy cost for miners would be too high. All unprocessed transactions are held in something called a mempool which is a mix of memory and a pool. Miners can choose which transactions to authenticate here. On top of the standard gas fee, users pay extra gas or priority fee to the mempool to prioritize their transactions.
The gas fee is problematic for users since it varies unpredictably. When there are more users on the network, the gas fees often rise. This fosters an unbalanced system in which the gas fee you pay rises without your control.
There's no denying that NFTs are popular right now. These digital artworks are simple to comprehend, buy, sell, and trade in. They give a more enigmatic aspect to crypto in general. Every individual NFT must be minted on a blockchain which is a pretty basic and easy process that requires the use of a cryptocurrency wallet, some cryptocurrencies, and a little amount of energy.
Just as NFTs have expanded in recent years to embrace a wide range of digital goods from art to music files to virtual worlds, the gas fees for minting could range from under $1 to over $1,000. Many popular NFT wallets will allow you to mint fully free of charge, while some may charge a minimum gas fee of between $70 and $120 to get you started. However, during peak seasons, costs could jump to $200-300.
Since the IRS has not given explicit guidance on gas fees, experts advise treating them cautiously. Generally, the tax treatment of gas fees is dependent on the type of transaction for which they were charged.
When a transaction involves a trade or exchange, gas fees might be included in the cost basis of an item. The cryptocurrency obtained is taxed as income if you claim yield farming rewards, airdrops, or staking incentives.
Meanwhile, since transfers and other miscellaneous blockchain fees don't include the acquisition of an asset, they are regarded differently from the preceding two cases. As a result, it is not as simple as adding the charge to the cost base. There are several approaches to taxing these fees including treating them as taxable sales, deducting the amount of ETH spent on fees from your holdings, but do not record a capital gain or loss or sell ETH for 0 USD, and claiming a capital loss on the ETH spent. You can include ETH transfer costs in your cost base.
Do you want to save some bucks on your Ethereum transactions? Weekdays from 8 a.m. to 1 p.m. are the busiest and most pricey times (EST). This is unsurprising given that Europe and the United States are both fully up and working throughout that time. The least busy hour, on the other hand, is somewhere between midnight and 4 a.m. (EST), when most of America is sleeping, Europe is about to start its day, and Asia is just wrapping up their workday. Thus, gas fees for Ethereum transactions are lowest between 2 and 3 a.m. on a Saturday or Sunday (EST).
NFTs are the talk of the digital world. But how can you join in on the action of being able to purchase them without paying exorbitantly? Gas fees are a feature of the NFT system, however, to avoid paying the premiums that are commonly levied and to prevent higher gas fees, consider a few things:
If you use Mintable Marketplace or the Polygon Network on Opensea, you could sell an NFT without paying gas fees, regardless if you have 0 eths in your wallet.
To do this, you must:
Gas fees are an important component of the NFT system, and they are transforming the digital world, but they don't have to cripple you financially. By carefully selecting your time and strategy, you could avoid or limit those fees, allowing you to buy or sell NFTs rather than being discouraged by high gas fees.