Why Do Transactions Cost Money?

Nothing comes for free, and modern-day financial innovations are clear examples of it. Blockchain networks like Ethereum have transformed the financial world as these digital ledgers contain vast worlds of decentralized apps, smart contracts, DeFi, and NFTs. 

Every activity on the blockchain network requires computational power and storage, including transacting ETH, swapping tokens, or transacting on decentralized applications (dApps). In order to prevent unnecessary spam and infinite loops, Ethereum and other blockchains charge a transaction cost, which is widely known as Gas Fees. 

However, these gas costs have become a burden for the Ethereum community due to the growing cost of transactions, along with its users. 

What are Gas Fees

One can think of gas fees as the transaction fee or “fuel” required to make anything happen on the Ethereum blockchain. Users are not paying for the transfer of money itself. Instead, they are paying the network validators for the energy and computational work it takes to verify and permanently record your transactions on the digital ledger. 

Every action users perform on the Ethereum blockchain network, such as sending ETH, swapping tokens on decentralized exchanges like Uniswap, requires a small amount of computational effort from the network. Gas fees are how you compensate the validators who provide that effort and keep the network secure. 

Gas measures the computational work a transaction needs. Simple ETH transfers use 21,000 gas units. A more complex smart contract interaction, like swap or mint, could use 100,000+ units. 

Here is the formula for Gas Fees;

Gas Fee: Gas Used x Gas Price (in gwei, where 1 gwei = 0.000000001 ETH).

These gas fees help the network to pay validators for processing and securing the network. These validators help them to compensate validators for resources, give priority to urgent transactions during congestion, and prevent denial-of-service attacks by making spam expensive. Without transaction costs or gas fees, wrongdoers can slam the network for free and choke it without unnecessary activities. 

• Before 2021 or the Ethereum Merge: It was a simple first-price auction, where users used to bid high gas prices, and miners used to pick the highest bids. This has triggered volatility, and users overpaid or waited forever. 
• After 2021, EIP 1559 changed the previous process with a hybrid model, which is still used in 2026. 

1. Base Fee – Automatically set by the network based on recent block fullness. This targets 50% block usage, which adjusts up and down by up to 12.5% per block. 
2. Priority Fee – Optional user-set amount to validators for faster inclusion.
3. Max Fee per Gas – User cap; any excess is refunded. 

This makes fees more predictable, burns ETH, and removes miner manipulation incentives. 

Issue of High Gas Fees in the Past and Ethereum’s Plan to Reduce Them

During the bull run of 2021, high fees skyrocketed due to limited throughput, which was approximately 15-30 TPS on Layer 1, and demand spikes. The trouble of these high fees sparked a discussion in the community and evolved through numerous upgrades.

1. Ethereum Merge – In 2022, Ethereum went through its biggest transformation after it transitioned from proof-of-work to proof-of-stake to improve efficiency. However, this upgrade did not reduce transaction fees; it has created a foundation for upcoming upgrades that were intended to reduce fees.
2. Dencun (2024) – It has introduced proto-danksharding (EIP-4844) with “blobs”, which creates cheap temporary data storage for Layer 2 rollups. This upgrade was expected to cut L2 fees by 90% to 95%. 
3. Pectra (May 2025) – This Pectra upgrade has doubled blob capacity, enhanced EVM, and added account abstraction (EIP-7702) for gas sponsorship and batching. 
4. Fusaka (December 2025) – This recent upgrade has increased blob further along with PeerDAS for massive data availability. This sends it toward over 100,000 TPS via L2s. 

How to Reduce Transaction Fees

There are some tips and tricks that can help you to reduce fees while using the same network. 

1. Use Layer 2 Solutions – One can use layer-2 solutions to bridge these networks with layer-2 solutions like Arbitrum, Optimism, Basem, or Polygon zkEVM. On these layer-2 solutions, transaction cost could potentially be reduced to $0.01 – $0.10.
2. Time Your Transactions – Users have to choose off-peak transaction timing, such as weekends or early UTC morning hours, when demand is low, and the network is not so busy. 
3. Set Gas Settings – Users must use wallets with “slow” options during quiet times and use batch actions during as it executes multiple transfers in one transaction via smart wallets after the Pectra upgrade. 
4. Monitor Tools and Gas Abstraction – Keep your eyes on gas trackers such as Etherscan Gas Tracker, Blocknative, or ETH Gas Station for real-time prices. Some new dApps are sponsoring fees or using account abstraction for smooth experiences. 

Summing Up

Despite backlash, Ethereum gas fees ensure the safety of the network and make the network spam-resistant while rewarding validators at the same time. In order to reduce these transaction fees, Ethereum developers are continuously making changes with new upgrades, and layer-2 solutions are helping users to cut down gas costs significantly. 

Also, users must have some awareness of blockchain technology to save their hard-earned money. 

Also Read: DeFi 2.0: How Decentralized Finance Is Reinventing Itself for Stability