Almost everyone wants a piece of the crypto pie, and investors continue to flock to buy coins and NFTs. Unfortunately, while looking to invest in potentially profitable projects, there is a headache for every crypto investor: gas wars.
So what is 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 relates to 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 needed to complete your transaction on a blockchain.
However, gas fee is the fraction you pay miners for the computing power or staking effort used to process a particular transaction, either in a proof-of-work (PoW) or proof-of-stake (PoS) mechanism. ).
The price of gas varies depending on the blockchain and factors such as gas wars. For example, while Ethereum’s merger to a seemingly cheaper proof-of-stake method in Ethereum 2.0 might lower its gas fees, version 1.0 charges more expensive gas fees than other blockchains because 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 other crypto transactions, you’ll likely pay a fee for it – that’s the gas costs.
What is a gas war in crypto? What is the cause ?
Simply put, a gas war is fierce competition for a cryptographic product between addresses transacting on a blockchain, which invariably results in increased gas fees. Therefore, those who cannot afford the upside are excluded from a trade.
Like real market rule, a gas war begins when demand for a crypto asset exceeds its supply. Therefore, transactions may fail or become slower once the blockchain reaches its real-time volume threshold. So, some people tip blockchain validators in an attempt to complete transactions faster, tricking them into increasing gas fees based on this trick.
Unfortunately, bidders may continue to pay more gas costs to beat others, until most people can no longer afford it, thus giving priority to the highest bidders. This is why you might pay more for gas than the original asset when purchasing certain crypto products. It is obvious that most people will probably give up in such a situation; this reduces the number of addresses performing transactions at any given time.
Therefore, a gas war is a mechanism used to reduce skirmishes in transactions during a high demand scenario. A crypto gas war can occur during an NFT minting or a new release of coins.
The Ultimate Price of a Crypto Gas War
A crypto gas war only favors the few, and those who are beaten in it face frustrations. The effects of a gas war include:
A gas war increases fear of missing out among investors. And that’s one of the reasons they’re engaging in a gas war. However, those with lower purchasing power tend to lose and miss out in the end.
2. Financial loss
The money that vanishes during a gas war is not news. For example, you may have paid handsomely for gas during a popular NFT mint. But your transaction may fail if something goes wrong while your purchase is being processed.
Therefore, you risk losing the fees you paid earlier, as it is a smart contract and non-refundable.
3. High transaction failure
A gas war increases the likelihood of a crypto transaction failing since only the highest bidder of gas fees 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 issues are also sometimes the causes of failed transactions.
For example, the Ethereum blockchain hit a bottleneck during the Otherdeed mint, prompting Yuga Labs to apologize to investors in a tweet.
4. Increased Gas Charges
A steady rise in gas fees is usually the end result of a crypto gas war. The more investors are willing to pay for gas, the higher the gas charge.
Any crypto asset that causes a gas war is undoubtedly already scarce. But an asset becomes scarcer when a gas war occurs when minting or buying. This often increases the market price of these crypto commodities, as investors do not want to sell lower than 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?
Although you have no control over a gas war outbreak, there are things you can do to prevent it.
The default way to avoid a gas war is to outperform other bidders by participating and paying the highest gas price. This is not financial advice, however, since you could end up gambling and losing money.
But one of the best ways to avoid a gas war is to be an early supporter or active member of an NFT or crypto project. NFT communities, for example, typically assign early members and active members specific roles that give them early minting or buying privileges. And these people do not participate in public auctions or minting.
So if you find a promising project, come early to pledge your support and stay active. You could earn the role of an early incumbent by doing so.
No worries if you can’t afford the gas costs
Some investors don’t back down during a gas war. They pay more money for gas instead. If this continues, it could drive gas fees higher than the price of an NFT or more than the value of the crypto being traded. You don’t need to be intimidated during a gas war. It only indicates that a project is attractive and could be very valuable.
Instead of paying a large sum in gas costs when buying, you can buy the floor price of a project in the secondary market if you are determined to invest. But keep in mind that this is not financial advice.