What is the Difference Between a Gas Fee and a Transaction Fee?
The payment system for the first digital coin, Bitcoin, was designed to be secured by decentralized computing power that validates transactions. The owners of these computers would then get paid a “miners fee” for validating and completing settlements on the BTC blockchain. However, with proof-of-stake consensus systems, blockchains are secured by validators, which are distributed computers that maintain the blockchain’s integrity. Validators are like bankers who confirm incoming transactions in the bank.
There is no mining fee in PoS. Instead, validators earn interest on their staked coins. Users sending coins on PoS blockchains pay a network fee, which goes to compensate network participants for securing it. The Ethereum mainnet developers named it “gas fee” since it’s like gasoline that fuels cars. Other networks have also adopted the name, so these days, the general term for the cost of completing a payment on most blockchain networks is “gas fees.” XRP, for example, uses a Federated Consensus Mechanism called the Ripple Protocol Consensus algorithm, where validators participate in the network based on trust and reputation. However, the fee on the XRP blockchain is also called “gas.”
Transaction fees, on the other hand, could have varying meanings based on the angle you pick. First, it’s a general term covering all costs one incurs during payments. For example, suppose you send funds from the Coinbase wallet and are charged a markup. Transaction fees, in that case, will mean all the extra money you paid, including the markup and validator’s compensation. On the other hand, if defined from the point of the cost of validating a payment on a blockchain only, then it’s the same as gas fees. In that case, one would have to refer to the specific network, for example, XRP transaction cost.
Transaction Fee/Gas Fee = Gas Units Used * Price per Gas Unit
What is the XRP Transaction Cost?
Current Transaction Cost
XRP transaction cost, as already mentioned, refers to the amount required to compensate network validators. When talking about the Ethereum mainnet, network costs are calibrated in gwei, where one gwei equals 0.000000001 Ether. For XRP, fees are measured in drops, where one unit is 0.000001 XRP.
As of writing this, the XRP website shows that the minimum transaction cost is ten drops, which is 0.00001 XRP. So with one coin trading at $0.4, ten drops are only $0.000004. Remember that various factors, such as blockchain overload, may cause the minimum fees to go up. Also, there is no fixed cost for this, as it all depends on the status of the blockchain.
Special Transaction Costs
The current transaction cost explained above is applicable for instances like sending money. However, there are other special charges for different activities you may engage in while on the XRP network. Here is a breakdown.
|10 drops × (1 + Number of Signatures Provided)
|EscrowFinish with Escrow Fulfillment
|10 drops × (33 + (Fulfillment size in bytes ÷ 16))
|2 million drops
What is the Purpose of the Gas Fee?
The purpose of gas fees varies across different blockchains. For Ethereum, it’s paid to validators. Without it, there wouldn’t be an incentive to motivate investors to stake their coins and help secure the network. For XRP, gas fees are meant to stabilize prices over time and eliminate the chances of hyperinflation. They also help protect the platform from spam and denial-of-service (DoS) attacks.
Do XRP Validators Get Paid?
Unlike Ethereum, XRP validators don’t get paid. Instead, the success and decentralization of the network are their stimuli since they hold vested interests in the XRP project. They include banks and payment providers, who must help secure the platform for their business to be successful. Some leading ones are the Massachusetts Institute of Technology (MIT), World Link, Microsoft, Telindus-Proximus Group, and GGI. Ripple has defended this model by saying it’s fast and energy efficient.
Beneficiaries of the Transaction Cost
If you have read this article from the beginning, you may wonder who the XRP transaction costs’ beneficiaries are. Unlike BTC, where miners get a mining fee, and ETH, where validators earn interest on their staked coins, XRP does not pay anyone to secure its network. Instead, transaction costs represent an amount of money that must be destroyed through a process known as burning to keep inflation low. So if you thought XRP was a deflationary coin, you were right.
“Burning” is just a term that was coined to make it easy to understand the process of coin destruction. However, what actually happens is that the coins marked for ruin are sent to a dedicated wallet outside the network. This wallet can only receive tokens; once inside, the crypto can’t be withdrawn or transacted forever.
Can I Avoid Paying Gas Fees?
Just like a car can’t function without fuel, so are blockchains. Validators are the primary building blocks of decentralization and must be compensated to motivate them further. On the XRP network, each transaction must burn some coins. So, you can’t avoid paying gas fees. However, you may spend far less if you choose to transact when the blockchain is not busy. Nevertheless, XRP charges insignificant amounts to complete payments, so you don’t have to stay worried.
Will the Gas Fee Increase or Decrease?
Gas fees are not fixed like traditional banking charges. They rise and fall occasionally based on various factors. The traffic on the blockchain is the primary determinant of how much it costs to complete payment. You may have come across terms such as “network congestion” or “network status.” They both refer to traffic. The law of demand and supply comes into play in pricing network fees. Prices go up when there is a higher demand for validation services, meaning the network is overloaded or congested. On the other hand, when validators are less busy due to low network traffic, gas fees reduce.
Gas fees stand at the core of every crypto transaction. They determine whether or not your payment will be completed and how fast this will happen. Some wallets like Metamask even allow you to fix custom payments to speed up your validation process. For XRP, costs are meant to be minimal since that’s the only way the network can offer the best cross-border transaction rates. Although the fee doesn’t benefit anyone in particular, it still helps to keep the coin prices stable. We hope you enjoyed reading this article. We have more for you; browse our website and find another educational piece. While at it, feel free to share this article with your friends and family.
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