In years, non-fungible tokens (NFTs) have exploded in popularity, with millions of dollars being spent on these digital assets. But to understand the role of Ethereum gas in the NFT market, it's important to first understand what Ethereum gas is.
Ethereum gas is the fee paid by users to the Ethereum network to execute a transaction or smart contract. Gas is denominated in ether (ETH), the native cryptocurrency of the Ethereum network, and is used to cover the cost of computational resources required to execute a transaction. In simple terms, gas is the fuel that powers the Ethereum network.
In the context of the NFT market, gas plays a crucial role in the creation, buying, and selling of NFTs. Let's break down the various ways in which gas is used in the NFT market:
Creation: When an NFT is created, it requires a smart contract to be deployed on the Ethereum network. This process requires gas, and the amount of gas required depends on the complexity of the smart contract. More complex contracts require more gas, which can result in higher fees for the user.
Sales: When an NFT is sold on a marketplace, the transaction requires gas to execute. The amount of gas required for a transaction depends on the complexity of the transaction and the current state of the Ethereum network. During times of high network congestion, gas prices can rise significantly, making it more expensive to buy and sell NFTs.
Bidding: When an NFT is auctioned off, bidders must pay gas fees to place a bid. In addition, each time a new bid is placed, the gas fee must be paid again. This can result in a significant amount of gas fees being paid by bidders, especially in highly competitive auctions.
The impact of Ethereum gas on the NFT market is significant. High gas prices can make it more expensive to create, buy, and sell NFTs, which can in turn impact the overall demand for these digital assets. In addition, high gas prices can make it difficult for smaller NFT marketplaces to compete with larger ones, as they may not have the resources to cover the high gas fees required to operate on the Ethereum network.
To address the issue of high gas fees, there have been efforts to develop Layer 2 solutions, such as rollups and sidechains, that can offload some of the computational burden from the Ethereum network. These solutions aim to reduce the amount of gas required for transactions, making it more affordable to create, buy, and sell NFTs. Silks plans to utilize these emerging technologies to streamline our technology, creating easier access with less friction.
Gas prices are often expressed in GWEI, a unit of measurement for the amount of gas used in an Ethereum transaction. It is a smaller denomination of ether (ETH), the native cryptocurrency of the Ethereum network. The price of gas varies depending on the demand for computational resources on the Ethereum network. During times of high network congestion, the price of gas can increase significantly, resulting in higher transaction fees for users.
- For example, a gas price of 20 GWEI means that the user is willing to pay 20 billionths of an ETH for each unit of gas used in the transaction. The total cost of the transaction is determined by multiplying the gas price by the amount of gas used.
- We operate under the general assumptions that 1 GWEI = $1 USD
Silks recommends keeping close tabs on gas prices, and not executing transactions when GWEI values are higher then normal resulting in lost fees.