Almost everyone wants a piece of the cryptocurrency 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 cryptocurrency investor: gas wars.
So what is a cryptocurrency war and how can you avoid it as an investor?
What is gas in cryptocurrencies?
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, in general, you can think of crypto gas as the fuel needed to complete your transaction on a blockchain.
However, the gas commission is the fraction that is paid to miners for the computing power or participation effort used to process a particular transaction, in a proof of work (PoW) or proof of participation (PoS) mechanism.
The price of gas varies depending on the blockchain and factors such as gas wars. For example, while Ethereum’s Merge to a Proof of stake seemingly cheaper in Ethereum 2.0 could lower gas tariffs, version 1.0 charges a more expensive gas tariff than other blockchains since it adopts the PoW mechanism (the same one used by Bitcoin) .
Whether you are buying or minting a non-fungible token (NFT), transferring a crypto token, participating in an NFT or crypto airdrop, or other crypto-based transactions, you will most likely pay a fee for it – that’s the gas fee.
What is a gas war in Crypto? What is the cause?
Put simply, a gas war is a tough bidding competition for a crypto commodity between addresses transacting on a blockchain, which invariably results in an increase in the gas tariff. Therefore, those who cannot afford the increase are excluded from a transaction.
Like the real market rule, a gas war begins when the demand for a crypto asset exceeds its supply. As a result, transactions may fail or slow down once the blockchain reaches its real-time volume threshold. So some people tip blockchain validators in an attempt to transact faster, prompting them to raise the gas tariff based on this tip.
Unfortunately, bidders may continue to pay more taxes for gas to beat others, until most people can no longer afford it, thus prioritizing the highest bidders. That’s why you may be paying more for gas than the original asset while purchasing some crypto products. It is clear that most people are likely to give up in such a situation; this reduces the number of addresses transacting at any given time.
Therefore, a gas war is a mechanism used to reduce transaction scuffles during a high demand scenario. A cryptocurrency war could occur during an NFT mint or new coin release.
The final price of a cryptocurrency war
A cryptocurrency war favors only a few, and those who have been defeated face some frustrations. The effects of a gas war include:
A gas war increases the fear of losing among investors. And this is one of the reasons they engage in a gas war. However, those with lower purchasing power tend to lose and eventually lose.
2. Financial loss
Money that vanishes into thin air during a gas war is nothing new. For example, you may have paid handsomely for gas during a famous NFT mint. However, the transaction may fail if there is a problem processing the purchase.
Therefore, you may lose the fee you paid earlier as it is on a smart contract and is non-refundable.
3. High transaction error
A gas war increases the likelihood of a crypto transaction failing as only the highest bidder of the gas commission secures a space in an upcoming block. Therefore, buyers with lower bids tend to lose the war due to a failed transaction. Worse still, internet, blockchain, and wallet problems are sometimes also the causes of the transaction failure.
For example, the Ethereum blockchain encountered a bottleneck during the Otherdeed mint, prompting Yuga Labs to apologize to investors in a tweet.
4. Increase in gas commissions
A steady increase in the gas tariff is usually the end result of a cryptocurrency war. The more investors are willing to pay for gas, the higher the gas commission.
Any crypto asset that causes a gas war is undoubtedly already rare. But a commodity becomes rarer when a gas war occurs during the minting or purchase. This often raises the market price of such crypto products as investors don’t want to sell for less than what it took to buy.
However, people who lose a gas war could buy at a higher rate in the secondary market.
Can you avoid a gas war?
Even if you don’t have control over a gas war outbreak, there are some things you can do to avoid it.
The default way to avoid a gas war is to outdo other bidders by participating and paying the highest gas price. This isn’t financial advice, though, since you could eventually gamble and lose money.
But one of the best ways to avoid a gas war is to be an early backer or an active member of an NFT or crypto project. NFT communities, for example, typically assign early enrollees and active members to specific roles that give them minting or advance purchase privileges. And these people don’t participate in public auctions or minting.
So if you find a promising project, join early to secure your support and stay active. This way you could win the role of an early starter.
No problem if you can’t afford gas commissions
Some investors don’t hold back during a gas war. Instead they pay more for gas. If this continues, it could push the gas commission higher than the mint price of an NFT or more than the value of the cryptocurrency being traded. You don’t have to be intimidated during a gas war. It just indicates that a project is attractive and could be of great value.
Instead of paying a large sum in gas commissions during the purchase, you can buy the all-time low of a project’s minimum price in the secondary market if you are determined to invest. But keep in mind that this is not financial advice.