Almost everyone wants a piece of the crypto cake, and investors keep trooping in their numbers to buy coins and NFTs. Unfortunately, while looking to invest in potentially profitable projects, there’s a headache for every crypto investor: gas wars.
So what’s a crypto gas war, and how can you avoid it as an investor?
What Is Gas in Crypto?
The term gas in crypto is typically associated with the Ethereum blockchain and concerns the computing power required for a successful transaction on the Ethereum blockchain. Other blockchains, including Solana, Tezos, and Cardano, among many others, have also adopted this term.
So generally, you can think of crypto gas as the fuel required to complete your transaction on a blockchain.
However, the gas fee is the fraction you pay miners for the computing power or stake effort used to process a particular transaction, either in a proof of work (PoW) or proof of stake (PoS) mechanism.
Gas price varies depending on the blockchain and factors like gas wars. For instance, while Ethereum’s Merge to a seemingly cheaper proof of stake method in Ethereum 2.0 might lower its gas fees, version 1.0 charges a more expensive gas fee than other blockchains since it adopts the PoW mechanism (the same used by Bitcoin).
Whether you’re buying or minting a non-fungible token (NFT), transferring a crypto token, participating in an NFT or crypto airdrop, or some other crypto-based transactions, you’ll most likely pay a fee for it—that’s the gas fee.
What Is a Gas War in Crypto? What’s the Cause?
In simple terms, a gas war is a stiff bidding competition for a crypto commodity between addresses transacting on a blockchain, which invariably results in a hiked gas fee. Hence, those unable to afford the hike get excluded from a transaction.
Like the real-life market rule, a gas war starts when the demand for a crypto asset is higher than its supply. As a result, transactions might fail or become slower once the blockchain hits its real-time volume threshold. So some people tip blockchain validators in a bid to transact faster, prompting them to increase the gas fee based on this tip.
Unfortunately, bidders might keep paying more gas fees to beat others—until most people can’t afford it any longer, thus, prioritizing the highest bidders. That’s why you might pay higher for gas than the original asset while buying some crypto products. It’s glaring that most people will likely give up in such a situation; this reduces the number of addresses transacting at a particular time.
Therefore, a gas war is a mechanism used to reduce transaction scuffles during a high-demand scenario. A crypto gas war might occur during an NFT mint or a new coin release.
The Ultimate Price of a Crypto Gas War
A crypto gas war favors only a few, and those beaten to it face some frustrations. The effects of a gas war include:
1. Missing Out
A gas war increases the fear of missing out among investors. And this is one of the reasons they engage in a gas war. However, those with lower buying power tend to lose and miss out in the end.
2. Financial Loss
Money vanishing into thin air during a gas war isn’t news. For example, you might’ve paid handsomely for gas during a popular NFT mint. But your transaction might fail if a problem occurs while your purchase is processing.
Hence, you might lose the fee you paid earlier since it’s on a smart contract and non-refundable.
3. High Transaction Failure
A gas war increases the failure probability of a crypto transaction since only the highest gas fee bidder secures a space in an upcoming block. Thus, buyers with lower bids tend to lose the war to a failed transaction. Worse, internet, blockchain, and wallet problems are also sometimes the causes of transaction failure.
For instance, the Ethereum blockchain hit a bottleneck during the Otherdeed mint, prompting Yuga Labs to apologize to investors in a tweet.
4. Increased Gas Fees
A steady spike in the gas fee is usually the ultimate outcome of a crypto gas war. The higher investors are willing to pay for gas, the higher the gas fee.
Any crypto asset that causes a gas war is undoubtedly already rare. But an asset becomes rarer when a gas war occurs during mint or purchase. This often increases the market price of such crypto products since investors don’t want to sell lower than what it took them to buy.
However, people who lose a gas war might buy at a higher rate in the secondary market.
Can You Avoid a Gas War?
While you have no control over a gas war outbreak, there are a few things you can do to avoid it.
The default way to avoid a gas war is to outcompete other bidders by participating and paying the highest gas price. That’s not financial advice, though, since you might ultimately gamble and lose money.
But one of the best ways to avoid a gas war is to be an early supporter or an active member of an NFT or a crypto project. NFT communities, for instance, typically assign early joiners and active members to specific roles that give them early minting or buying privileges. And such people don’t participate in public auctioning or minting.
So if you find a promising project, hop in early to pledge your support and stay active. You might win an early holder’s role by doing so.
No Worries if You Can’t Afford the Gas Fees
Some investors don’t back out during a gas war. They pay more money for gas instead. If this continues, it might push the gas fee higher than the mint price of an NFT or more than the value of the crypto being transacted. You don’t need to get intimidated during a gas war. It only indicates that a project is attractive and might be highly valuable.
Instead of paying a large sum in gas fees during purchase, you can buy the all-time low of a project’s floor price in the secondary market if you’re hell-bent on investing. But keep in mind that this isn’t financial advice.
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