The digital art world is one of the most compelling investments right now. Collectors, celebrities, and investors are all flocking to digital art.
Names like Beeple are becoming mainstream, particularly since the artist’s work has a value of more than $175,000,000.
If it’s a new concept to you, there are certain terms and logistics to be aware of before you dive in. One term you’ll hear is gas fees. So what are gas fees and the implications for digital art investors and creators?
The Basics
Gas fees are transaction fees on the Ethereum cryptocurrency. NFTs, go hand-in-hand with gas fees. When you get involved with NFT, you’ll realize that you need money to buy NFTs but also to create and sell them.
Most NFTs either don’t sell at all, or they might sell for a few hundred dollars, contrary to the image many people have right now that they’re all selling for hundreds of thousands of dollars or even millions.
If you create and sell your NFTs, you’re going to be paying gas fees, so you can end up losing money instead of making it.
Gas fees always change, so you’re not necessarily going to know what you’re going to be spending.
You might still be confused, so what does all that mean?
Understanding the basics of blockchain becomes helpful.
An Overview of Blockchain
NFTs are non-fungible tokens. These are like cryptocurrencies because they’re on blockchains. The NFTs themselves aren’t on the blockchain, but their tokens are.
A decentralized database, blockchain is maintained by peer-to-peer computers. No company owns it, and there isn’t a central authority. As a result, maintaining and updating the ledger is up to the nodes that make up the network. These are known as miners.
Ethereum is an NFT-supporting blockchain that uses a proof-of-work algorithm for validation.
Miners put a lot of energy into transactions, so they get a reward for their work. That’s where specifically gas becomes important.
What is Gas?
Gas is a unit of measurement for the amount of computing power needed to perform a transaction on the blockchain.
The idea is like the gas in your car—the gas fuels the actions executed on the blockchain.
Every step requires resources, which someone has to pay for, and it’s not miners. The end-users pay for the resources required to complete a transaction. The fee that you pay for the amount of gas used for your particular transaction is your gas fee.
The gas fee is distinct from the price of ETH, which is Ethereum’s native crypto Ether. The gas fee doesn’t relate to the value of ETH. The gas fee is a fraction of ether, using a unit called gwei.
You compensate to use the Ethereum Virtual Machine or EVM, which means you’re asking a miner to perform a transaction for you. You compensate in a few gwei, usually.
Fluctuating Gas Prices
Gas always fluctuates, and these ups and downs are because of supply and demand. When there’s a high demand for Ethereum, the gas fee goes up. Miners can ignore requests if they have a lower gas fee.
In some instances, gas fees go beyond the price of an NFT as much as thousands of dollars.
There can also be a variation in the gas fee that depends on the transaction speed. If you want a faster transaction, you have to pay more.
Which Transactions Do You Pay Gas Fees On?
If you create an NFT, you’ll probably have to pay gas fees. When you create one, you mint the token on the blockchain, and minting a token includes the information about the metadata on a block on the blockchain and the smart contract of the NFT.
Since you’re interacting with the blockchain, you pay gas fees.
Certain marketplaces will let you do lazy minting, which means you don’t mint your NFT token on the blockchain until someone buys it.
In this case, the buyer pays the gas fees rather than the seller, but either way, a gas fee is getting paid.
If you list an NFT to sell it, the marketplace won’t usually charge fees, but some will instantly charge service fees. Others charge the fee when the NFT is sold, and this might include gas fees required to complete the sale.
Some marketplaces use a model where the buyer pays the gas fee if they sell an NFT at a fixed price. If you auction off an NFT, a marketplace might require that you pay gas fees in order to accept the highest bid.
Finally, some marketplaces will cover the gas fees for auctions, and then you only have to pay service fees to the platform.
