Gas Fees
Definition
Transaction fees paid to blockchain validators for processing and confirming transactions, denominated in the network's native token (e.g., ETH for Ethereum).
Gas fees are the cost of doing business on a blockchain. Every transaction — whether it's a simple token transfer, a swap on a decentralized exchange, or a complex smart contract interaction — requires computational resources from network validators. Gas fees compensate validators for this work.
On Ethereum, gas is measured in units called "gwei" (one billionth of an ETH). Each operation in a transaction consumes a specific amount of gas, and the total fee equals the gas used multiplied by the gas price. More complex transactions (like interacting with DeFi protocols) use more gas than simple transfers.
Gas fees are dynamic — they increase when the network is congested (many people submitting transactions) and decrease during quiet periods. Ethereum's EIP-1559 introduced a base fee that adjusts automatically based on demand, plus an optional priority fee (tip) to incentivize faster inclusion.
High gas fees have been one of the biggest criticisms of Ethereum. During peak activity, a simple swap could cost $50-100+ in fees, making small transactions uneconomical. This drove the development of Layer 2 solutions like Arbitrum, Optimism, and Base, which process transactions off the main chain at significantly lower costs.
Gas fees are tax-deductible in the US as part of your cost basis. When buying crypto, the gas fee adds to your cost basis. When selling, it reduces your proceeds. For complex DeFi transactions with multiple gas fees, accurate tracking is essential for proper tax reporting.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
How can I reduce gas fees on Ethereum?
Use Layer 2 networks (Arbitrum, Optimism, Base) for significantly lower fees. Time transactions during off-peak hours (weekends and late night UTC). Set a lower max gas price and be willing to wait. Use gas tracking tools to find optimal times.
Are gas fees tax-deductible?
Yes. Gas fees for acquiring crypto increase your cost basis, and gas fees for selling reduce your proceeds. Both effectively reduce your taxable gain. Keep records of all gas fees paid as they're part of your transaction cost.