Does Bitcoin Have Gas Fees? A Simple Answer

Cryptocurrencies like Bitcoin and Ethereum look to be the future of online investment. Based on the blockchain, cryptocurrency is said to be both more secure and harder to manipulate than hard currency. But what is this thing that people are calling a gas fee?

Bitcoin has gas fees that buyers need to pay when making online Bitcoin purchases. While this is not the case with every cryptocurrency, in order for “miners”—the people who harness Bitcoin—to maintain the blockchain, buyers must pay a gas fee when purchasing Bitcoin.

Understanding blockchain, Bitcoin, and cryptocurrency writ large can be incredibly difficult. Read on to learn more about Bitcoin, what it is, how it works, and why you might need to pay a gas fee.

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Why Bitcoin Has a Gas Fee

Understanding how Bitcoin works is essential to understanding why Bitcoin has a gas fee. Bitcoins gas fee is not actually a fee administered by the government for using gas but is rather a way to reimburse those who “mine” for Bitcoin and maintain the blockchain. 

As mentioned previously, to actually find one of these Bitcoins on the internet, certain individuals must use computers to solve incredibly complex mathematical puzzles.

These puzzles are so complex that it takes a lot of computing power to actually find these coins. In fact, for most common “miners” it would take a computer about 720 hours, or 30 straight days, to solve the puzzle and enter the Bitcoin into the blockchain. 

This, as you can guess, consumes a lot of energy. In most cases, it costs anywhere between $7,000 and $10,000 to mine a single bitcoin. On top of this, not any computer is powerful enough to mine bitcoin efficiently. Usually, powerful specialized rigs are built just for that purpose.

While bitcoin is worth a lot of money, for many, spending $10,000 just to find a single bitcoin seems much too expensive. As a result, a transaction fee, sometimes referred to as a gas fee, has been instituted to help reimburse the miners for the work it takes just to mine a bitcoin. 

This helps to encourage people to continue to mine bitcoin, despite the fact that it costs so much to mine bitcoin and the cost will only go up as bitcoins get harder to find.

As of now, the average transaction fee for bitcoin is about $2, but this can change depending on the number of people mining bitcoin and the cost to mine it. At the beginning of this last year, the transaction fee was closer to $4.40, and at one point, it was up to as high as $62. 

Fortunately, for cryptocurrency investors, fees seem to be falling for mining bitcoin, but this could change by the end of the year.

Understanding Bitcoin and the Blockchain

Unlike the US Dollar, Yen, Euro, or any form of government-backed currency, Bitcoin is not, strictly put, fiat money, nor is it a representative currency. 

Bitcoin is a cryptocurrency, meaning it is entirely produced and traded online and is secured by cryptography, making it almost impossible to counterfeit. Bitcoin’s value comes almost entirely from its demand and the general trust investors have in it.

Bitcoin is based on something called the blockchain. In a nutshell, blockchain technology is a specialized database that records and stores information and transactions. 

The blockchain Bitcoin is based on is, at its most basic, a leger recording information. For example, one “block” could be “Ben gives his mother $1”, the next block could be “Ben’s mother gives $1 to his sister” and so on and so forth. The blockchain records exactly where this singular dollar is at any point.

This is what makes the blockchain so secure. It would be really easy if I was a computer programmer to enter the blockchain to say “Ben’s sister gives him $1 million”. The beauty of blockchain is the fact that another computer programmer could then look at that “block” of information and realize that it is impossible for Ben’s sister to give him $1 million because she does not have $1 million according to what the blockchain has said in the past.

If I wanted to make the transaction of “Ben’s sister gives him $1 million” look legitimate then I would need to go through and change almost every block so that, somehow, Ben’s sister had accumulated $1 million from people giving it to her. This is easier said than done. The blockchain is so massive and takes up so much data that it would take an incalculable amount of time to change the transactions. 

The security of Bitcoin is then combined with the fact that there is a limited number of coins available. Coins are “mined” when a computer is able to solve an incredibly difficult math problem using a certain program that, on purpose, makes it take much longer to solve the math problem. There is a limited number of these problems in the program, so while new coins are still coming into the system, eventually there will be a limited amount.

Understanding How Money Works

When it comes to currency, either electronic or physical, it is important to understand that, in most cases, the currency is not backed on something “real”.

Before the understanding of what is called “fiat money”, most currencies around the world, including the US dollar, were called “representative money”. Representative money meant that the currency, in this example, the US dollar, represented a certain amount of gold that could be collected from the US treasury.

In other words, when individuals owned a US dollar, the understanding was that whoever the holder of the money was, could, if they so wanted, bring the dollar to the US Department of Treasury and exchange it for a certain amount of gold. Prior to World War 2, $35 represented one ounce of gold. Though people rarely did go to the government to exchange paper currency for gold, it was still possible to do, and this gave the money value.

During World War II, however, the US government realized that backing their dollar on gold was unsustainable. Eventually, the world would run out of gold, and the amount of money in the system would be forever capped. 

President Nixon was so concerned by this, that he canceled this agreement with other countries and individuals. The US at this moment permanently left what is called the gold standard, in exchange for fiat money.

Fiat money, as we have described it, is now the most common form of currency. Rather than backed by a precious metal, fiat money is backed by the government that produces it and people’s trust that the government will not collapse. 

In other words, people are not using the US Dollar because they are exchanging it for gold, but are rather trusting that the US government will not collapse at any said moment. The same is true for the Euro and the Yen.

Final Thoughts

Understanding gas fees and why Bitcoin has gas fees can only happen when you understand how bitcoin works. Though the process of mining, purchasing, and spending bitcoin is very complex, cryptocurrency is one of the quickest growing forms of investment, with many other cryptocurrencies beginning to develop.

However, while Bitcoin is relatively secure, it is not necessarily stable. Bitcoin’s prices have been known to change rapidly. At one point during 2021, Bitcoin reached a high of more than $64,000. Today, bitcoin is far less expensive. Purchasing bitcoin, like other investments, has a risk of loss.

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