Gasless Transactions Explained: Who Pays the Gas Fee in Crypto?

Since the release of Bitcoin in the year 2009, blockchain technology has promised a decentralized future for global financial markets and digital market interaction. Gas fees, however, had been a long-standing barrier to the speedy progress of this innovative idea of a decentralized financial network.

Gas fees refer to the amount paid as a cost to compensate for the computationally hard processes that run in the background to secure the blockchain and keep it alive. Gas fees have earned a notorious reputation among users of cryptocurrencies for their unpredictability, expense, and confusing nature. This often worries the newcomers to crypto and makes it nearly impossible to transact small amounts of money in a practical manner.

Gasless transaction is an innovative invention that promises to solve this problem once and for all. This is a mechanism that takes the load from the user and transfers it to a third party. This creates a smoother Web 2.0-like environment. In this article, we will look in detail at gasless transactions and how they are even possible in crypto.

Traditional Gas Fees And Their Problems

Gas limit and Gas fees are two terms that every user on the DeFi ecosystem is familiar with. To sign a transaction and to broadcast it on the blockchain, these users have to include the gas limit and the gas fees that they are willing to pay in their transaction. Miners or validators who validate or approve these transactions prioritize them based on how high or low these parameters are. This prioritization often causes network congestion and wild swings in fee rates.

Even though the system is put in place to prevent spam and protect the integrity of the network, it creates substantial friction that makes the user experience quite bad. This primarily creates an onboarding barrier to newcomers who have to swap their assets into the native token to perform transactions. This can increase the drop-out rate in the DeFi ecosystem, which will eventually lead to a liquidity loss and will affect the stability of prices.

The transaction can also get stuck if a user runs out of the network’s native token, and miscalculations in gas fees can cause the transactions to fail. This is a very frustrating situation, especially for the newcomers.

High gas fees limit the use cases of the DeFi ecosystem. For instance, high costs associated with small-value transactions like voting in a DAO or purchasing in-game items become impractical.

Gasless transactions come into play here by developing an ingenious solution where these annoying problems are offset to a third party. To understand this mechanism, we will continue to the next section, where we will discuss the workings of gasless transactions.

How Gasless Transactions Work

The way gasless transactions are executed is through an architecture named meta-transactions or sponsored transactions. It is important to know that gasless transactions do not imply that the process is free; someone else is carrying the burden of paying the cost or gas fee.

The innovation lies in shifting this burden to a dApp provider, a relayer network, or a sponsor. There are two stages to the meta-transaction process. Stage-1 is called ‘User initiation and off-chain signing,’ and Stage-2 is called ‘Relayer submission and gas payment. ’ We will take a closer look at both stages now.

Stage-1: User Initiation and Off-Chain Signing

When a user starts a transaction within a dApp, the transaction has to be broadcast to the network. However, in this stage of gasless transaction, this does not happen; instead, the user’s wallet signs a message off-chain using their private key. This way, the user does not have to pay a gas fee.

Stage-2: Relayer Submission and Gas Payment

The off-chain signed message is then sent to a relayer. This relayer is an external actor. They can be an automated service or a dedicated network. This relayer plays the crucial role of verifying the user’s signature, wrapping the signed message into a blockchain transaction, paying the gas fee in the native token from its own balance, and broadcasting the transaction to the blockchain.

The dApp developer or relayer thus absorbs the cost. This cost is then recouped through operations like subscription, tokenomics, and user retention. This is how the relayer can keep paying the gas fee.

The Role of Account Abstraction

With the evolution of Ethereum came an even more sophisticated approach called Account Abstraction (AA). Account Abstraction is standardized by ERC-4337. This was launched in March of 2023. By using ERC-4337, a user’s wallet is transformed into a smart account (as in a smart contract itself). This is what helps unlock gasless transactions for traditional blockchain accounts with the help of AA.

In essence, AA simplifies the relayer process by introducing two key components, Paymasters and UserOperations. Paymasters are smart contracts that are programmed to pay the gas fees for specific transactions. In this form of payment, a dApp can fund a paymaster contract to sponsor all of the user’s interactions.

UserOperations system is a pseudo-transaction object. This is a user’s request to a smart contract. These operations are then coordinated with the paymasters to enable funding and eventually pay the gas fee.

The benefit of ERC-4337 is that it is a protocol-level solution. This ensures that no changes are required to the core Ethereum consensus layer to perform gasless transactions.

Benefits of Gasless Transactions

From a layman’s standpoint, the avoidance of paying the gas fee is the greatest benefit of gasless transactions. However, there is more to it than meets the eye. Gasless transactions reshape the entire DeFi ecosystem by fundamentally changing the way things operate.

By removing the need to buy the on-chain asset for paying gas fees, onboarding into dApps becomes easy. This attracts more mainstream users into the ecosystem. With the friction of gas fees reduced, transactions go through to the blockchain seamlessly. This increases the transaction volume and overall user activity on the network. This, in turn, enhances liquidity and market stability.

Challenges and Security Considerations

Even though gasless transactions are a great tool, they come with their own complexities and security threats. It is this trade-off that is always opening doors for innovations.

Without the burden of gas fees, malicious users try to spam the network with a large volume of transactions. This eventually leads to a relayer crash or system congestion. These attacks are called DoS or Denial of Service. To protect against these attacks, dApps must innovate with rate limits, user verification, and quota systems.

Since gasless transactions require a centralized relayer, the very concept of Decentralized Finance is tampered with. These centralized relayers introduce points of failure in the network. As a solution to this problem, decentralized relayer networks are being developed.

Conclusion

Gasless transactions are more than just a convenience; they are the next step in the evolution of blockchain technology to go global and facilitate several use cases for a mainstream audience. By removing the complexities associated with the gas fee, developers can build applications that are intuitive and user-friendly.

All of these advancements can be made possible by making smart tradeoffs between systems. This way, such an intuitive system can be put in place to protect the integrity of the system while making it more accessible and thereby inviting more users and liquidity, essentially stabilizing the asset and the network.

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