Ethereum Gas – Everything You Need to Know About It

Beginner’s Guide / 04.10.2020

Cryptocurrencies came to revolutionize the financial sector and are slowly taking over from the traditional banking system. For a long time, conventional banking has been associated with slow and inefficient transactions, especially when it comes to transaction fees. Intermediaries, or rather banks and other financial institutions, are part of what makes financial transaction costs relatively high. However, the end of this third-party influence in financial transactions started when Satoshi Nakamoto introduced Bitcoin, the first cryptocurrency.

Bitcoin and other first-generation cryptocurrencies allow the transfer of currency from one person to another, but they do not support the addition of some transactional conditions. However, the case differs for the second most popular cryptocurrency Ethereum, and Ethereum gas makes the real difference. 

What is Ethereum Gas?

Ethereum gas is a measurement unit that represents the computational power required to complete or execute a transaction in the Ethereum blockchain. The Ethereum network needs some form of energy to keep going, and this energy is usually the computational power that will help users complete ETH transfer or execute smart contracts. The Ethereum network uses ‘gas’ to measure the amount of force required or used in a particular transaction. For example, you will need a minimum of 21000 gas to complete a simple ETH transfer. 

Diving Deeper into Ethereum Gas

Every Ethereum user needs to dive deeper into Ethereum transaction fees and how gas works. Although it is a unit of measurement for the computational power, Ethereum gas does not exist in the real sense and is usually converted to its Ethereum equals. As such, it would sound logical to reason that gas does not need to be in the blockchain network, and the computational power can get expressed in ETH. However, a mechanism ensures the amount of Ethereum represented by a unit of gas remains constant. 

That way, users remain protected from the price volatility associated with cryptocurrencies. While ETH’s price can increase sharply or decrease, the cost of transferring the currency remains the same. When the ETH price increases, the system reduces the amount of Ethereum each unit of gas represents and keeps the transaction fees constant. The network will do the same when the Ethereum coin loses value, so users will not pay less for Ethereum gas. Therefore, the gas concept is set to ensure the cost of transactions in the Ethereum blockchain does not get affected by the price volatility. 

However, the price of gas can increase during times of high traffic in the Ethereum network. During these times, there are usually several transactions that are competing to appear in the next block. 

Gas as Miners’ Reward

In the Ethereum users’ perspective, gas is simply the transaction fees for completing transactions on the Ethereum network. However, gas is usually an incentive to miners who run the network as it determines the amount of reward they get for executing operations within the network.

Each transaction on the Ethereum blockchain requires some gas to run. Users pay the gas amounts, and then miners receive rewards in form of ETH equivalent to the amount of gas spent in completing transactions or executing smart contracts. Therefore, for every Ethereum transaction that users make, the demand for Ethereum increases, and the miners’ reward as well. 

Ethereum Gas Limit and Gas Prices

Ethereum gas limit refers to the amount of computational power that the Ethereum Virtual Machine will use in a particular transaction. The transactions on the network are different, and more complex transactions mean more gas will be used. A simple ETH transfer will have a lower gas limit compared to smart contracts. The transaction sender specifies their gas limit, and it can be or, instead, should at least be higher than the actual amount the transaction requires. Why?

If the sender sets a lower gas limit than what the transaction requires, miners will execute the transaction up to the point where all the gas gets used up. The miner will take the fees for the computational work done, but the transaction will record as ‘failed’ on the Ethereum blockchain. Setting the gas limit too high is also not recommendable as it gives miners additional tasks for sending refunds to the user wallet. 

Gas price refers to the value of one unit of gas in ETH that a user is willing to pay to execute their transactions. Users are set free to set the amounts, and the price set impacts the transactions. Miners will prioritize transactions with higher gas prices, so users setting gas prices low may have to wait long before their transactions get through. Transactions with gas prices too low can as well get ignored.

Conclusion

The concept of Ethereum gas is not entirely straightforward and easy to understand for the average person and especially those new in cryptocurrency. Further, it can be intimidating, especially when one cannot accurately compute the gas limit, thus ending up with a couple of failed transactions and lost gas. However, some wallets set gas limits for users, so they do not have to struggle while sending transactions. Users can also utilize the statistics from ETH gas station for gas prices, and even see the speed of execution at different price levels.

Adam is an outgoing young lad who likes adventures and discovering new things. Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.