1. Introduction to Cryptocurrency Transactions
When getting acquainted with cryptocurrencies, users often expect to see approximately the same working mechanisms as in regular banking applications. However, in reality, everything turns out to be a little more complicated. Since most cryptocurrencies are built on the basis of blockchain technology, transactions are carried out on different principles than in conventional fintech applications.
2. What is Blockchain?
Blockchain is a technology that represents a database consisting of transactions formed into blocks, designed according to certain rules. Each block contains information about the previous one. This technology is based on the principle of decentralization, meaning that the database is not in one place but is distributed across all computers of the system participants that form the network. For example, if a transaction was made in the blockchain network, information about it will remain on a million computers, ensuring it will never be lost or forged.
3. How Cryptocurrency Transactions Work
A cryptocurrency transaction is an operation during which cryptocurrency or other information is transferred between addresses. The transaction is sent only after the sender signs it with a special digital key. Only then is this information transferred to the blockchain network, where miners or validators check the transaction for compliance with all the rules. If the transaction complies with them, it is formed into a block along with others and added to the general database.
To send a transaction, the user needs to pay a fee as a reward to miners or validators for their verification work. This fee is paid only in the native coins of a particular network. If it is the Bitcoin blockchain, then the fees will be calculated in BTC; if it is the Ethereum network, then in ETH.
4. Understanding Gas in Cryptocurrencies
Gas in cryptocurrencies is the amount of computational effort required to complete a transaction. More complex transactions consume more gas, leading to higher fees. If a transaction needs to be confirmed quickly, the user sets a higher gas price. If the gas price included in the transaction is too low, miners may ignore it.
5. Gas as Fuel for Transactions
Gas in cryptocurrencies can be compared to fuel for a car, where a transaction represents the distance from point A to point B. To reach the destination, the user must refuel the vehicle before starting the journey. Essentially, gas represents the amount of computing resources required to execute the transaction.
For example, network fees in the Ethereum blockchain, called “gas,” are measured in units called Gwei, which is a fraction of the Ether coin (0.00000001 ETH). Gwei is used to pay for the computing resources required to perform blockchain operations, including transfers, exchanges, token conversions, protocol interactions, and NFT issuance.
Thus, when a user plans to transfer a USDT token using the Ethereum blockchain, they must pay for the computing resources in the network’s native coins. They cannot pay the commission in USDT because the network rules require payment in ETH. Other blockchain networks use a similar mechanism for forming commissions.
6. The Changing Cost of Gas
While the amount of gas for certain operations may remain the same, the price of fuel varies. The gas price is determined by market demand for processing transactions on the second-largest cryptocurrency network. During periods of increased user activity, the cost of operations can rise significantly.
In March 2024, Etherscan showed that the average daily network fee on Ethereum exceeded $29, with a peak of $200 per transaction recorded in May 2022. This peak coincided with the NFT boom, where thousands of collections were minted daily, each requiring a gas fee upon release.
7. Innovations in Gas Payment
Teams of developers from various projects are working on solutions to simplify gas payments in cryptocurrencies. One approach is enabling payment for computing resources in the tokens that the user plans to transfer. For example, if a user holds USDT, they could pay fees in USDT using the Ethereum blockchain, without needing ETH in their balance.
8. New Solutions in Gas Payments
One such solution is the development of special wallets that automatically cover network fees in native coins without the user noticing. The wallet client pays the commission in selected tokens.
The TON blockchain development team introduced such a wallet standard in July 2023. This innovation allows tokens to be transferred within the network without requiring Toncoin in the wallet. The new function is available in TON Space and MyTonWallet.
In the Ethereum blockchain, similar functionality was introduced in March 2023 as part of the Shanghai update, but has not yet been widely adopted.
9. Starknet's Solution for Gas Payments
As a second-layer scaling solution for Ethereum, Starknet has introduced its own approach to gas payments. Following a community vote in early 2024, it was decided that transaction fees could be paid using native STRK tokens, alongside ETH coins.
Conclusion
Understanding cryptocurrency transactions and gas fees is essential for navigating the blockchain ecosystem. With ongoing innovations in gas payment mechanisms, users can expect greater flexibility and cost efficiency in their transactions. As blockchain technology continues to evolve, developers will likely introduce more user-friendly solutions for handling transaction fees and network costs.
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