If you have had an Ethereum transaction, you know what Gas is. Gas is the unit that determines how much fee you should pay for an Ethereum transaction. The concept of Gas may seem complex to newcomers, but the truth is that understanding it (at least at the theoretical level) is very easy. In this article, we will explain everything about Gas and its use cases in the Ethereum network. Stay with us.
What is Gas?
For doing any transaction on the blockchain networks, you should pay a specific amount of fee. In the Ethereum network, this fee is called “Gas” and is paid in Ether (the native coin of Ethereum).
You know that Ethereum supports smart contracts and hosts a large number of decentralized applications. Doing any kind of activity related to smart contracts and decentralized applications is actually a transaction. For example, imagine that you are using an Ethereum-based social media application. Liking a post or posting a comment on this application is like doing a transaction for which you have to pay a fee. On the other hand, different activities may require different amounts of fees based on their complexity. The fee for a simple activity on Ethereum is different from the fee for a more complex one. So, you can guess that determining the amount of fee on Ethereum is more difficult than on a simpler network like Bitcoin. The concept of Gas has been created to facilitate this process.
How does Gas work and how does it determine the amount of fee?
To understand how Gas determines the amount of fee on Ethereum, you should be familiar with two concepts: Gas limit and Gas price.
Gas limit is a unique concept specific to Ethereum. It determines the maximum amount of fee you are willing to pay for an Ethereum transaction. By the way, it has a minimum amount too. The minimum amount of Gas for a simple activity on Ethereum is 21,000 Gas. So, for doing a transaction, you need to pay at least 21,000 Gas. The more you increase this amount, the less time your activity will take. This is upon you and your will.
Gas price is the price of each unit of Gas. Unlike the Gas limit which is a fixed amount, the Gas price is variable. It can vary at different times based on the traffic of the network. When the network is crowded, the Gas price will increase and vice versa. However, the average Gas price is 20 Gwei or 0.00000002 Ether. We repeat that this amount is completely variable and can increase significantly when the network is congested.
The Ethereum fee is calculated by multiplying the Gas limit by the Gas price. So:
The Ethereum fee = Gas limit * Gas price
Let’s clarify this formula through an example. Imagine a user who wants to make an Ethereum transaction. The network requires 21,000 Gas for doing this transaction. Moreover, the network is not so crowded, and 20 Gwei per Gas is enough. The fee this user has to pay equals 0.00042 Ether (21,000 * 0.00000002).
Note: users don’t need to determine the amount of the fee manually. The Ethereum wallets automatically set the appropriate amount of fee, based on the network congestion. So, don’t be worried about determining the amount of the fee, and trust your wallet.
Why doesn’t Ethereum have a fixed amount of fee?
The answer is that the Ethereum network is not always in a stable state. This blockchain is sometimes less crowded and requires fewer fees. At other times, it is more congested and the amount of the fee increases accordingly. If the amount of the fee was calculated directly based on Ether, with Ether’s price increasing, the fee would also increase significantly. For example, imagine each Ethereum transaction required 0.05 Ether as a fee. Then, if Ether’s price increased to 10,000 dollars, the amount of the fee also increased to 500 dollars. This is not logical for a simple transaction.
In this article, we tried to explain the concept of Gas and how it helps calculate the Ethereum fee. Gas is another sample of Ethereum’s interesting innovations. It determines the amount of fees in a dynamic way. Therefore, you as a simple user, don’t need to pay as much fee as a developer.