As you explore the new world of Ethereum and use your Rainbow wallet to travel around, you’ll quickly discover that there are transaction fees associated with doing things like swapping currencies, sending assets, minting NFTs, and more.
In this short guide, we’ll help you understand how these transaction fees work and explain why they can sometimes be so expensive!
The costs of security and decentralization:
- The Ethereum blockchain is a giant decentralized ledger that records transactions. It’s like a huge spreadsheet where a new row gets added every time someone does something like send money.
- Transactions are written on the blockchain by people called miners and secured by validators. Most normal people like us don’t actually interact with the blockchain directly; rather, a miner does it on our behalf in exchange for a small fee called Gas.
- This Gas fee is always paid in Gwei which is a fractional amount of Ether (1 Ether = 1 Billion Gwei). You must have enough Ether in your wallet every time you want to make a transaction. Important Note: Wallet apps like Rainbow don't control or receive this gas fee.
- Gas costs fluctuate constantly based on supply and demand, and miners prioritize transactions based on the amount of gas that is submitted (the more you pay in gas relative to others, the greater your chances of your transaction being picked up by the miner).
- During times of peak demand, so many people are competing for a miner’s attention that you have to pay a higher amount of gas in order to get through.
Rainbow predicts the gas price for you:
- Rainbow automatically predicts the amount of gas that will likely be needed to successfully complete a transaction. This prediction is set by default but can be changed manually to increase or decrease the speed at which your transaction will complete. You can even set a custom gas fee.
- If your gas fee is too low though or if the demand suddenly increases after submitting, your transaction might fail or take longer than expected:
Gas Fees on Layer 2s:
- Transactions can be quite expensive on mainnet, making it unfeasible for many people to use it. The Ethereum ecosystem has created additional layers that are compatible with Ethereum and support its load at much more cost effective rate!
- Here at Rainbow we call these extra layers "Networks", but you might also hear people call them Layer 2s and Sidechains.
- These Layer 2s (or sidechains) are inexpensive and can create instant transactions. On a network like Polygon as an example, you might only pay $0.005 in comparison to a $5 transaction on Ethereum.
For additional details, check out our Layer 2 Guide here:
Layer 2 Networks
Up until recently, Rainbow and many other blockchain projects have only been compatible with Ethereum—the world's public decentralized ledger. Ethereum is extremely secure and highly reliable, but it isn’t always well suited for speed and efficiency.