Solana Gas Fees are really low in comparison to its rival’s blockchain, Ethereum. But even with Solana’s inviting gas fees, Ethereum remains the second biggest cryptocurrency network according to market capitulation, despite having expensive gas fees in contrast.
In this article, we are going to be looking at transaction fees in terms of the aforementioned blockchains and see what makes them either cheap or expensive.
What Are Transaction Fees or Gas Fees?
In crypto, transaction fees are charges you attract for buying, selling, or transferring tokens. You can think of them as the traditional bank charges you pay whenever you transfer money to a recipient’s account via your bank app. Similarly, sending crypto to another wallet address requires extra deductions to complete the transaction.
Typically, you will come across three types of transaction fees while using cryptocurrencies:
- Exchange fees
- Wallet fees
- and network fees
Exchange fees are dues paid to a crypto exchange for providing a service that allows people to trade and transfer cryptocurrencies on their platform. Crypto exchanges need these fees to run the platform.
Wallet fees are charged by wallet providers whenever a user buys, sells, swaps, or transfers tokens on a crypto wallet. These days, crypto exchanges and applications have integrated crypto wallets, so wallet fees are becoming negligible.
Network fees are transaction fees that belong to the network inside which a transaction is fired. So if you transfer ETH from your wallet to a receiving ETH address, you’ll pay network fees to Ethereum. This article will focus on network fees.
But since blockchains are decentralized, who gets the money?
Network validators (or Miners) earn network fees as block rewards for verifying transactions. The amount of block rewards issued to a miner varies depending on the network.
Why Gas Fees On Ethereum Are So High
Ethereum network fees are called ‘gas fees’ and denoted as ‘gwei’. 1 ‘gwei’ is equivalent to 0.000000001 ETH. So instead of saying your gas fees cost 0.000000003 ETH, you could simply say it costs 3 gwei. Ethereum gas fees are calculated using a formula that considers the previous block size.
The cost of gas fees is driven by the demand on the Ethereum network. Ethereum is built to accept new blocks every 15 seconds and each new block can fit around 70 transactions. That means Ethereum has a hard limit of 5.4 transactions every minute.
As user activity increases, the demand gets close to the network’s maximum capacity. As a way to slow down traffic, Ethereum raises the gas fees to price out users. Therefore, in periods of peak demand, gas fees can shoot to ridiculously high prices.
Being a direct factor of network demand, ETH gas fees are known to fluctuate from time to time. At one point, at the beginning of 2022, ETH gas fees surged to around $50.
At the time of writing, ETH gas fees have settled to an average of 0.0015 ETH (~$1.57).
ETH Gas Fees Chart
There is a common misconception about the Ethereum Merger improving the cost of gas fees. However, there’s no direct correlation between the two. The Merge was supposed to be a switch from the proof-of-work consensus mechanism to proof-of-stake. And Ethereum only promised that the new method of validating transactions will be more energy-efficient, reducing energy consumption by 99.5%.
Why Do People Still Put Up with Ethereum’s High Gas Fees?
One might wonder why people endure the expensive gas fees at Ethereum instead of looking for an affordable alternative.
The Ethereum network has one of the best security protocols and you can’t put a price on safety. Security is one of the biggest fears involved with using crypto and people will happily spend a little extra to guarantee the safety of their funds.
Ethereum has a programmable blockchain that allows developers to build custom tokens and secure decentralized applications.
The Development of DAOs
Ethereum offers the design of community-powered, decentralized systems for organizing a group of people with common goals.
The Solana Network: How Does it Work & What Makes Solana Gas Fees Really Cheap?
Solana is also a programmable blockchain that provides the functionality for developers to build their own crypto and decentralized scalable applications. But in comparison to Ethereum, Solana is faster with much less gas fees.
In addition to proof-of-stake (PoS), Solana has technology that encodes the timestamp of entries to its blockchain called proof-of-history (PoH).
The Solana architecture is designed with a special algorithm that beats software limitations on performance, making Solana faster than blockchains before it. Solana introduced a blockchain technology that scales up depending on the bandwidth of its underlying network. That means the speed of blockchain transactions is directly proportional to the speed of the network attached to it. This improved architecture allows Solana to have a throughput of 710,000 on a standard gigabit network and 28.4 million on a 40-gigabit network.
One Solana block can hold 20,000 transactions at a limit of 10 MB. New block entries can be made every 0.4 seconds. That’s a much bigger block size than Ethereum and a block time nearly 20 times faster. When you consider the abundance of technology available to meet user demand at Solana’s camp—a block size that big and block time that’s fractions of a second, it’s easy to understand why Solana gas fees are virtually negligible ($0.00025 per transaction).
Why Ethereum Remains on Top Solana
Now the big question is how come Solana hasn’t surpassed Ethereum yet in market capital since it offers the same functionality but faster and with significantly cheaper gas fees too.
As of writing, Ethereum is the second-ranked cryptocurrency on Coinmarketcap.com and has a market cap of almost $12 billion. On the other hand, Solana is well-behind at a market cap of about $700 million.
Ethereum has a big reputation as a pioneer in the crypto world and has won the trust of many investors and users.
Many Ethereum scale solutions have been developed in the form of layer-2 protocols or rollups. They are separate blockchains that share the same security as Ethereum but handle transactions independently. That way, the throughput of the Ethereum network is expanded via the processing power of its many rollups. The gas fees for transactions carried out on Ethereum rollups are usually 100x cheaper.
In a Nutshell
At the end of the day, cheap gas fees are just one of the factors Web3 users consider while selecting a network. Assuming gas fees were ultimate, Solana’s affordable gas fees will put it ahead of Ethereum. However, Ethereum intends to solve the expensive gas fees issue soon enough in a future upgrade that will accommodate sharding.