Cryptocurrencies and blockchain technology aim to shake up the status quo of money, the finance industry, and the very foundation of how business is conducted. With a decentralized structure and lower fees, crypto could help make the world a more efficient place.
However, lower fees doesn't mean no fees at all. Whenever work is being done, and money changes hands, someone is being compensated. Enter gas fees.
What generates a gas fee?
All transactions carry a variable gas fee that's based on the size and complexity of the operation. A payment or transfer from one account to another (for an online purchase or reimbursing a friend for a payment) is one of the simplest and cheapest transactions. Other operations that generate gas fees include creating a non-fungible token (NFT) or creating and executing a smart contract.
Why are gas fees necessary?
A basic concept in economics is that all work requires compensation. In a blockchain network, computers use electricity to compute and verify transactions taking place. Electricity -- and the computer that uses it -- costs money. The people who pay for the lights (and the computer) to stay on should be compensated for their efforts to keep the network functioning properly and to prevent unauthorized tampering with the blockchain or theft.
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Gas fees can work in favor of investors
The cryptocurrency industry is rapidly developing. That can cause some extreme swings in crypto prices, which veteran crypto investors have seen several times over the years. Although the crypto space can be viewed as highly speculative and should be approached with caution, gas fees offer a reason to keep currencies such as Ethereum on your radar. Owners of Ethereum can stake their holdings and earn passive income from gas fees.
Granted, that passive income will also be highly variable over time, as will the value of your crypto holdings. Again, exercise caution and make any crypto investment (if you choose to make one at all) part of a diversified portfolio investment strategy, including other assets such as stocks and bonds.
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