What is NFT
August 18, 2022
Ethereum calls gas “the fuel that allows [the network] to operate, in the same way that a car needs gasoline to run.”
Gas fees compensate “validators," the entities who confirm and secure transactions on the blockchain.. Each blockchain has different gas fees. These fees differ depending on how each chain validates transactions.
Users often want to know who receives the money from these gas fees, and the answer depends on the method each blockchain uses to verify transactions. So let's step back to discuss the two primary methods of validation: Proof-of-Stake and Proof-of-Work.
Blockchains that use the Proof-of-Stake method verify transactions using validators. Validators are users who stake large amounts of that blockchain's cryptocurrency. These validators check each transaction and monitor all activity on the blockchain to ensure it's correct. This method has validators vote on the outcome.
Blockchains that use the Proof-of-Work method verify transactions using miners who solve complex mathematical problems to confirm each transaction. Both of these methods are designed to ensure security and integrity, which is why gas fees are paid to validators or miners.
Ethereum originally used the Proof-of-Work method but in 2022 transitioned to the Proof-of-Stake method in an event known as “The Merge.” According to the Ethereum Foundation, this shift reduced its energy consumption by ~99.95%. The Foundation has stated that “the Merge was a change of consensus mechanism, not an expansion of network capacity, and was never intended to lower gas fees.” So while Ethereum is now greener, gas fees are still driven by demand, not energy consumption.
Gas fees increase when more people use applications that run on top of a blockchain's network. Gas fees Gas fees spike as users compete for block space similar to surge pricing in ride-hailing apps.
Fees are incurred when data is stored or changed, tokens are transferred, NFTs are minted, sold, or purchased, and so on. Each of these actions involves different changes to the blockchain and therefore requires a different gas fee.
It's also important to note that gas fees don't change the price of the NFT you're buying, but they do change the overall price of the transaction, so buying an NFT during a busy time when other people are also using the network can result in an overall higher cost.
