NFT Gas Fees: What It Is & How to Calculate It
Interest in non-fungible tokens (NFTs) and crypto collectibles peaked considerably following the sale of a digital image collage entitled “Everydays: The First 5000 Days” at Christie’s, the famous auction house, for a record-breaking $69.3 million. The NFT, created by Mike Winkelmann, a digital artist popularly known as Beeple, set a new record for a digital-only artwork, and became the third most expensive artwork by a living artist to be sold at an auction.
The ensuing popularity of NFTs attracted flocks of creators and artists who see the blockchain-based technology as a means of monetizing their talents. Of course, the NFT market quickly proliferated, and thousands of digital files exchanged hands daily. Nevertheless, buying, selling and transferring NFTs typically comes with a transaction cost — namely, gas fees.
If you’d like to trade NFTs, you may wonder what NFT gas fees are and why they’re necessary. This article will help you understand how NFT gas fees work, why fees are required, and how to calculate them.
What Is a Gas Fee?
A gas fee is the charge that users pay to transact on the Ethereum blockchain. Gas is used to compensate miners for the computing energy and resources expended to validate transactions and to include them in the blockchain. In other words, gas fees are a reflection of the amount of computational power required to record a transaction on the Ethereum blockchain network.
Gas fees are denominated in gwei, which are minute fractions of Ether (ETH), the native token of the Ethereum network. A unit of gwei is equivalent to one billionth of Ether — that is, 1 nanoether, or 0.000000001 ETH.
Gas prices fluctuate, depending on the complexity of a transaction and traffic on the network. Naturally, a transaction requiring more computational power will demand higher fees. Also, transacting during peak periods with plenty of traffic on the Ethereum network will attract heftier fees.
Gas fees can be compared to a cargo transport truck service, where the goods are transactions. The heavier the goods transported from point A to B, the more fuel or gas will be expended. At the same time, if the road is congested, the trucks also use up more fuel to get to their destination. The truck service will also prioritize moving the goods of customers who are willing to pay more than the base price.
What Do Gas Fees Mean for an Artist?
Artists and creators know that dealing with NFTs on the Ethereum network can be expensive due to gas fees. But they understand that NFT gas fees are the price to pay to create, sell and buy NFTs. Of course, this has a significant impact on NFT creators and artists. So, what do gas fees mean for artists?
Contrary to popular belief, NFTs don’t always sell for six figures. Most sell moderately, for a few hundred dollars, and many may not be sold at all. Considering that you have to pay gas fees to create and sell your NFT, you may lose money rather than make a profit. To make matters worse, it’s not easy to predict what you’ll be paying for gas since the price keeps changing.
High gas prices mean artists may find it challenging to profitably create and sell their work profitably. To make their artwork-related NFTs more affordable when gas prices spike, some artists may attempt to reduce the overall price of the artwork to compensate for the cost of gas. This, however, presents a new challenge, as buyers may perceive the work to be of less value — since they have to decide if it’s worth spending a larger percentage of the total cost on gas fees.
Gas prices are unrelated to the absolute value of the digital asset, and in some cases may outstrip the price of the assets put up for sale. This is especially difficult for new and upcoming artists who haven’t yet established name recognition for themselves.
Essentially, an artist without a solid enough reputation might find it difficult to sell their art when they overcharge to attract higher prices.
How Is Gas Used for Minting an NFT?
Minting an NFT describes the process of converting digital files into digital assets stored on the blockchain. Like every other transaction on the Ethereum blockchain, minting an NFT requires resource-intensive computations from miners. Gas fees were conceived of as a way to compensate miners for helping to record your transaction on the blockchain (and, in this case, mint the NFT).
For the artist, minting the NFT is relatively easy, a bit like uploading a video onto YouTube. Once you’ve uploaded the file, you have to approve the gas fee, which will come from your digital wallet. When you’ve paid the fee, the minting process will start.
Because gas fees aren’t directly related to the value of the NFT, sellers and buyers of digital art can lose money on a transaction. In other words, your costs could exceed what you get — or pay — for the NFT.
Why Does Minting an NFT Require Gas Fees?
Minting is the act of creating an NFT on a blockchain. Because blockchains are decentralized networks not owned by a central authority, they’re maintained by miners who mint NFTs. Miners use their own computing power, and in return they expect a payment to cover their time and resources.
Gas fees help keep the blockchain running by incentivizing the miners who validate and add user transactions to the blockchain. Since they get paid for the work, miners will strive to make more in gas fees, thereby increasing the network’s security. Greater incentive means that miners are more willing to expend resources validating transactions to secure the blockchain. This also optimizes transaction speed, since more computational resources will be dedicated to mining operations.
How Much Does It Cost to Mint an NFT?
The costs for minting an NFT fall under the following categories:
- Gas fees – for transacting and storing your NFT on the blockchain
- Account fees – charged by the NFT marketplace that you’ve chosen to use
- Listing fees – a charge for the sales listing
Prices differ from blockchain to blockchain. There are even price differences between transactions on a single blockchain. These fees are dependent on several factors, including the amount of data used, the speed of the transaction and the time of day.
The cost to mint an NFT ranges widely. When converted to fiat, the cost can vary from $1 up to $500 or more. Creators can choose from several NFT marketplaces, with each platform charging different fees.
Ethereum has become more expensive in recent years, a victim of its own popularity. The network has limited capacity, and the more people who use the platform, the more crowded it becomes. Since the gas fee depends on supply and demand, costs have climbed.
Currently, the Ethereum gas fee is made up of a base fee and a tip. The base fee is burned and the tip is paid to the miner.
Total transaction fee = Gas Units (Limit) × (Base Fee + Tip)
With a gas limit of 21,000, base fee of 100 gwei and a tip of 20 gwei, the total fee is 2,520,000 gwei, or 0.00252 ETH. This would be equivalent to around $7.49 (at $2,971.81 for one ETH).
Minting NFTs on Ethereum can be expensive. NFT minting gas fees fluctuate due to demand on the network and the current price of ETH. The gas fees peak during periods of high demand as users competes to get their transactions added to blocks. Aside from the gas fee, some NFT marketplaces also charge a small fee for listing and transaction fees which are a percentage of the cost of the traded NFT.
Historically, costs for minting an NFT have even reached $500 per transaction.
NFT marketplaces such as Rarible and OpenSea offer artists the option of lazy minting, which allows you to put off minting (adding) your NFT to the blockchain until someone buys it. Lazy minting lowers the barriers to entry for creators. This is especially useful for artists new to the field, since they don’t yet know how well their works will sell.
Using lazy minting, the artist can defer payment to the time of sale. The gas fee is deducted on the same transaction as the sale, and the buyer typically pays the gas fees instead of the seller or creator. Otherwise, you can choose regular minting, which means that you’ll pay gas fees every time someone wants to buy your token.
There is no lazy minting option on the Solana blockchain, but the gas fees are a lot less expensive than Ethereum’s.
Though Ethereum is the most popular of the blockchains, it’s not the only one that mints and stores NFTs. There are others, including Polygon and Solana.
Solana has grown in popularity, and could even unseat Ethereum as the leading blockchain network. It’s currently the second-largest blockchain by transaction volume behind Ethereum.
Unlike Ethereum, fees don’t typically increase because of network congestion. Fees on Solana are also significantly lower than those on Ethereum.
Creators incur three blockchain transactions when minting an NFT on Solana. There are two approval transactions, and another for listing the NFT. Each transaction on Solana costs around 0.00045 SOL, which was around $.04 at the beginning of March 2022.
Do Gas Fees Affect the Price of an NFT?
The gas fee is independent of the price of an NFT. Pricing for an NFT is related to supply and demand, dependent on what the buyer is willing to pay for the asset.
This is why an artist can lose money when minting an NFT. If the gas fees are high and the digital artwork doesn’t sell well, the creator could take a loss.
The Sending and Selling of NFTs Require Gas Fees
There are fees involved in selling NFTs, which can include transaction fees and gas fees.
New sellers are often unaware of the costs, so they sometimes end up losing money. Transferring NFTs should be cheaper than minting them. Costs vary by marketplace, so it’s important to check before transacting. At the moment, OpenSea is the single largest generator of gas fees.
Gas fees change throughout the day. The actual gas fee is determined by supply and demand and is set by miners.
The gas fee that you pay will depend on transaction complexity, the price of related cryptocurrencies, and the amount of traffic on the network.
The minimum transaction fee is 21,000 GWEI. Since one GWEI is a billionth of an ETH, the least you can expect to pay is 0.0021 ETH. Multiply that by the current price of ETH to get the minimum transaction cost.
Smart contracts and NFTs will cost a lot more than the minimum of 21,000 GWEI. This is due to their complexity and the amount of computational power needed to transact. NFT transactions are much faster when you’re willing to pay higher gas fees. However, when the network is busy, the gas fees are bid up as users attempt to expedite their transactions.
Thrifty users who can wait will often transact over the weekend, or at quieter trading times during the day, in order to save on gas fees. Some platforms will allow you to set a gas fee limit, and will perform the transaction when the fees are low enough. If you can wait for an undefined period when the prices drop, this may be an option for you.
It’s easy to check the current price of gas fees on the internet using a gas tracker.
Setting a Gas Limit
A gas limit is a cap you set on the amount of ether that a transaction can consume. The risk you run when you set this limit is that the transaction may be rejected. Setting a low limit could save you money if your transaction isn’t time-sensitive.
If you set the gas limit at an amount higher than needed, you’ll receive a refund for the excess funds. If, on the other hand, you set the limit too low, you could lose the money if your transaction fails. You may also wait a long time before a miner is willing to conduct your transaction.
The Bottom Line
NFTs have skyrocketed in popularity in recent times and have given many artists and creators digital wings. Blockchain technology offers them new markets where they can ply their trade. These marketplaces do, however, come with costs, and unless the artists understand the costs of minting and selling, they could lose money.
Artists can set gas limits, or trade when the market is quiet, to save on gas fees. New creators can make use of the lazy minting option and pay when the NFT is sold. Those who know the tricks of the trade can lower their costs on their way to making it big on the blockchain.