Gas Fees Explained: Why Transactions Cost Money (And How to Track It for Taxes)

You tried to swap $100 of ETH for USDC on Uniswap.

Gas fee: $43

You paid 43% just to make the swap.

What the hell is "gas," why does it cost so much, and how do you account for it on your taxes?

What Gas Actually Is

Gas = the fee you pay to execute a transaction on a blockchain.

Think of it like:

Postage for mail - You pay to have your letter delivered
Credit card processing fees - Merchant pays 2.5% per transaction
AWS server costs - You pay for computational resources

In blockchain:

Validators/miners process your transaction
They use computational resources (electricity, hardware)
You pay them to include your transaction in a block

No gas payment = no transaction.

Why Gas Exists: The Computational Cost

Every transaction requires:

Computation: Running smart contract code
Storage: Writing data to the blockchain forever
Bandwidth: Distributing transaction to all nodes

Simple Transactions Use Less Gas

Example: Send ETH to a friend

Computational steps:
1. Check sender has balance
2. Subtract from sender
3. Add to receiver
4. Update state

Gas used: ~21,000 units

Complex Transactions Use More Gas

Example: Uniswap swap

Computational steps:
1. Check sender approved Uniswap to spend USDC
2. Transfer USDC from sender to pool
3. Calculate ETH output based on pool ratio
4. Transfer ETH from pool to sender
5. Update pool reserves
6. Emit swap event
7. Update price oracle

Gas used: ~150,000 units

More computation = more gas.

How Gas Is Calculated

Gas cost has two components:

Total Cost = Gas Used × Gas Price

Gas Used (Units of Work)

Fixed per transaction type:

Transaction Type	Gas Used
Send ETH	21,000
ERC-20 transfer	65,000
ERC-20 approval	45,000
Uniswap swap	150,000
NFT mint	100,000
Liquidity deposit	200,000
Complex DeFi	500,000+

This is determined by the code you're executing.

Gas Price (Gwei)

Variable based on network demand:

Gwei = "giga-wei" = 0.000000001 ETH

Gas prices fluctuate wildly:

Low congestion: 10-20 gwei
Medium congestion: 30-50 gwei
High congestion: 100-300 gwei
NFT drop / bull market: 500+ gwei

Think of it like Uber surge pricing:

Normal: $10 ride
Friday night: $25 ride
New Year's Eve: $75 ride

Higher gas price = your transaction is processed faster (miners prioritize high-paying transactions).

The Calculation

Example: Uniswap swap during medium congestion

Gas used: 150,000 units
Gas price: 50 gwei

Total gas: 150,000 × 50 = 7,500,000 gwei
Convert to ETH: 7,500,000 × 0.000000001 = 0.0075 ETH

If ETH = $2,000:
Gas cost = 0.0075 × $2,000 = $15

Same swap during high congestion (200 gwei):

Gas: 150,000 × 200 = 30,000,000 gwei = 0.03 ETH
Cost: 0.03 × $2,000 = $60

4x higher gas price = 4x higher cost.

[Visual suggestion: Graph showing gas prices over 24 hours]

Why Ethereum Gas Is So Expensive

Ethereum processes ~15 transactions per second.

Demand far exceeds supply:

Millions of users worldwide
DeFi protocols processing 24/7
NFT drops with 10,000+ people trying to mint at once

Basic economics: High demand + limited supply = high prices.

When Gas Spikes

Typical gas price patterns:

Time of day:

US daytime (9am-5pm EST): Higher (30-80 gwei)
US night (2am-6am EST): Lower (10-25 gwei)

Day of week:

Weekdays: Higher activity
Weekends: Slightly lower

Market events:

Bull run: 100-500 gwei
Bear market: 10-30 gwei
Major NFT drop: 1000+ gwei (yes, really)

Real example:

Bored Ape Yacht Club land sale (April 2022): Gas hit 8,000 gwei
Users paid $5,000-10,000 in gas per transaction

Gas Across Different Blockchains

Ethereum's high gas fees drove creation of alternative chains:

Ethereum L1

Gas token: ETH
Typical cost: $5-50 per transaction
Why: Limited throughput (15 tx/sec)

Arbitrum (L2)

Gas token: ETH
Typical cost: $0.50-2
Why: Bundles many L2 txs into one L1 tx (50-100x cheaper)

Optimism (L2)

Gas token: ETH
Typical cost: $0.50-2
Why: Same as Arbitrum (optimistic rollup)

Base (L2)

Gas token: ETH
Typical cost: $0.10-1
Why: OP Stack rollup, newer/less congested

Polygon

Gas token: MATIC
Typical cost: $0.01-0.10
Why: Separate PoS chain, very high throughput

zkSync Era (L2)

Gas token: ETH
Typical cost: $0.20-1
Why: ZK rollup, efficient proofs

This is why DeFi users moved to L2s: Same apps, 50-100x cheaper gas.

[Visual suggestion: Bar chart comparing gas costs across chains]

Gas Optimization Strategies

1. Time Your Transactions

Check gas prices before transacting:

Tools:

Etherscan Gas Tracker
Gas Now
Built into MetaMask

Best times:

Weekends
2am-6am EST
During bear markets

Savings: 50-70% by timing well.

2. Use Lower Gas Prices for Non-Urgent Transactions

MetaMask lets you set custom gas:

Low: Slow (may take 10+ min)
Medium: Normal (~2 min)
High: Fast (~30 sec)

Non-urgent transactions (staking rewards claim): Use low
Urgent transactions (buying a token about to pump): Use high

3. Batch Transactions

Instead of:

Claim rewards from 5 protocols = 5 transactions = 5x gas

Use batching tools:

Claim all 5 at once = 1 transaction = 1x gas

Example tools:

Disperse.app - batch transfers
Protocol-specific batch claim features

4. Use L2s for High-Frequency Activity

Ethereum: Large transactions, long-term holds, security-critical
L2 (Arbitrum/Base): Daily trading, DeFi farming, frequent swaps

Example:

100 swaps on Ethereum @ $35 each = $3,500 in gas
100 swaps on Arbitrum @ $0.80 each = $80 in gas

Savings: $3,420

5. Approve Unlimited Spending (Carefully)

Typical flow:

Approve Uniswap to spend USDC ($5 gas)
Swap USDC for ETH ($15 gas)
Total: $20

With unlimited approval:

Approve Uniswap to spend unlimited USDC (one-time $5 gas)
Swap USDC for ETH ($15 gas)
Future swaps: Only $15 gas (no re-approval needed)

Over 10 swaps: Save $45 in approval gas

⚠️ Risk: If Uniswap is hacked, attacker can drain all your USDC.

Best practice:

Unlimited approval for trusted protocols (Uniswap, Aave, Curve)
Limited approval for new/unaudited protocols

Gas and Taxes: How to Account for It

Gas fees are deductible, but the method depends on your tax situation.

Option 1: Reduce Capital Gains (Most Common)

Gas is added to cost basis or subtracted from proceeds.

Example: Buy + Sell

Buy 1 ETH for $2,000 + $10 gas
Cost basis: $2,010

Sell 1 ETH for $2,500, pay $15 gas
Proceeds: $2,485

Capital gain: $2,485 - $2,010 = $475

IRS logic: Gas is part of the transaction cost, just like broker fees for stocks.

Option 2: Business Expense (For Traders)

If you qualify as a "trader" (not investor):

File Schedule C
Deduct gas fees as operating expenses
Can deduct against ordinary income (potentially better)

Requirements:

Substantial trading activity (hundreds of trades/year)
Devote significant time to trading
Seek to profit from short-term price movements

Consult a CPA to see if you qualify.

The Tracking Problem

You need to track:

Gas for every transaction
Convert to USD on transaction date
Add to cost basis or expenses

Example year:

200 transactions
Average gas: $12
Across 5 blockchains (ETH, Arbitrum, Base, Polygon, Optimism)
Each gas payment in different native token

Manual tracking: 5-10 hours

How Moonscape Handles Gas Fees

Auto-Tracking

Every transaction includes gas:

Instead of:

Swapped 1000 USDC for 0.45 ETH
(You have to manually find the gas cost in block explorer)

You see:

Swapped 1000 USDC for 0.45 ETH
Gas: 0.008 ETH ($16.00)
Net proceeds: 0.442 ETH

Automatically pulled from blockchain data.

Cross-Chain Gas Tracking

We track gas across all chains:

Chain	Transactions	Total Gas (Native)	Total Gas (USD)
Ethereum	50	0.4 ETH	$800
Arbitrum	120	0.06 ETH	$120
Base	80	0.02 ETH	$40
Polygon	30	15 MATIC	$12
Total	280		$972

See exactly how much you spent on gas across all chains.

Auto-Adjust Cost Basis

For each transaction, we automatically:

Buy:

Bought 1 ETH for $2,000
Gas: $10
Cost basis: $2,010 (gas included)

Sell:

Sold 1 ETH for $2,500
Gas: $15
Proceeds: $2,485 (gas subtracted)

Gain calculation:

$2,485 proceeds - $2,010 basis = $475 gain

Gas is already factored into your capital gains.

Total Gas Report

At tax time, you get:

📊 2024 Gas Summary

Ethereum L1: $2,450
Arbitrum: $180
Base: $95
Optimism: $120
Polygon: $22

Total Gas Paid: $2,867

Show this to your CPA if you're claiming business deductions.

EIP-1559: The Gas Fee Update (Post-2021)

In August 2021, Ethereum changed how gas works:

Old System (Pre-EIP-1559)

You bid a gas price
All gas goes to miners

New System (Post-EIP-1559)

Gas = Base Fee + Priority Fee

Base Fee:

Algorithmically determined by network demand
Burned (destroyed) — no one receives it
Adjust up/down based on block fullness

Priority Fee (Tip):

You set this to incentivize miners
Typically 1-2 gwei
Goes to miners/validators

Example:

Base fee: 30 gwei (burned)
Priority fee: 2 gwei (to miner)
Total: 32 gwei

Tax Implication of Burning

When ETH is burned:

You paid for it (reduces your cost basis)
It's destroyed (deflationary for ETH)

Some argue burned ETH should be treated differently, but:

IRS hasn't given guidance. Most tax pros treat it the same as any transaction fee.

Real-World Gas Cost Examples

Example 1: Casual DeFi User

Activity:

Buy ETH on Coinbase (no gas, CEX)
Withdraw to wallet ($8 gas)
Approve USDC on Uniswap ($5 gas)
Swap ETH → USDC ($15 gas)
Bridge to Arbitrum ($12 gas)

Total gas: $40

Example 2: Active Trader (Ethereum L1)

Activity (over 1 year):

50 swaps × $20 = $1,000
20 approvals × $5 = $100
10 LP deposits × $30 = $300
10 LP withdrawals × $30 = $300
5 bridges × $12 = $60

Total gas: $1,760

Example 3: Active Trader (Arbitrum L2)

Same activity as Example 2, but on Arbitrum:

50 swaps × $0.80 = $40
20 approvals × $0.30 = $6
10 LP deposits × $1.20 = $12
10 LP withdrawals × $1.20 = $12
5 bridges × $0.50 = $2.50

Total gas: $72.50

Savings by using L2: $1,687.50

The Bottom Line

Gas fees:

Pay for computational resources on blockchain
Vary based on network congestion
Much cheaper on L2s (Arbitrum, Base, Optimism)
Are tax deductible (reduce capital gains or business expense)

For active DeFi users:

Gas can be 5-10% of portfolio value per year on Ethereum L1
Moving to L2s saves 90-98% on gas
Tracking gas for taxes is essential but tedious

Most tax software doesn't automatically include gas in cost basis calculations.

You're left with:

Manually looking up gas for each transaction
Converting to USD on transaction date
Adjusting cost basis by hand

Moonscape does this automatically.

Auto-Track Your Gas Fees

Moonscape automatically:

✅ Pulls gas cost for every transaction
✅ Converts to USD on transaction date
✅ Adjusts cost basis automatically
✅ Tracks gas across all chains
✅ Generates total gas report for CPAs

Try Moonscape →

Built for people who'd rather track than guess.
Moonscape — your crypto, your taxes, fully decoded.