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Home»Learn»Ethereum (ETH) gas and its purpose in network fees
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Ethereum (ETH) gas and its purpose in network fees

2024-05-28No Comments7 Mins Read
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Not enough gas for a transaction! How much gwei is it? The gas limit is too low! Most users outside the Ethereum ecosystem cannot avoid this kind of talk. The Ethereum platform is quite peculiar when it comes to transaction fees and operational features. It uses an internal payment method called gas – a fee required to process a transaction or execute a smart contract.

Let’s dive into the mysterious Ethereum world and discover how gas works with Changelly. We will talk about the Ethereum virtual machine, gas limits and gwei subunits, and then discuss miner rewards for executing transactions. We also look at gas price policy.

Why Ethereum uses gas

Although Ethereum has transitioned to a new consensus model with The Merge, gas remains an important part of the network. It helps maintain security, efficiency, and scalability by ensuring transactions are properly prioritized and processed.

Ethereum uses gas to keep the network running smoothly and efficiently. Gas acts as a tool for resource allocation, prevents misuse and ensures fair use of the network. By requiring users to pay for the computing power their transactions consume, Ethereum can ward off spam and denial-of-service attacks, maintaining overall network security.

Gas also incentivizes miners (or validators in the new model) to process transactions quickly. Since they earn gas fees for recording transactions in blocks, they prioritize those with higher fees. This system ensures that the network remains operational, even during periods of high activity.

Despite being a fundamental part of the ecosystem, gas prices – and therefore gas prices – have a notorious reputation. Many Ethereum rivals are focusing on making their transactions more affordable to compete. Additionally, many expected Ethereum’s transition to a new consensus algorithm to lower gas prices, but steep price tags remain. We will discuss gas prices in more detail later in the article.

How gas works in Ethereum

Gas is a fee for each transaction in the Ethereum network and at the same time the metric of the computational effort required for certain operations. You need a certain amount of gas to create or execute a smart contract, or to do anything on the Ethereum platform.

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For those who want to know more about the network, here is a detailed article about Ethereum: What is Ethereum about?

First, Ethereum’s virtual machine (EVM) and the smart contracts that exist on it run on Solidity code. Each line of this code requires a small amount of throttle to execute. Think about your car and its actual gas consumption, the fuel: you need a certain amount of gasoline to reach the destination of your choice, and you need to buy this certain amount of gasoline at the gas station before you leave. Similarly, you must fill the “gas tank” of your transaction before it is processed.

An Ethereum user must set a gas limit for each transaction. It refers to the maximum amount of gas that can be spent on a given transaction. Let’s talk about it in more detail.

Ethereum gas limit

gas allowance image

The gas limit is the maximum amount of gas charged for an instruction (transaction, action). It helps to avoid overspending, for example due to an error in a smart contract or otherwise. Essentially, it prevents you from spending an infinite amount of gas on one operation.

The amount of gas required for a given transaction is predetermined by the number of lines of code to be executed. An Ethereum user must set a gas limit that covers the amount of gas spent on the operation. If they do not do this, the transaction will not be completed because the miners will stop executing it once the gas runs out.

A bit like your car: the moment there is no more gas in the tank, the car stops and you cannot continue to your destination (which in our analogy is a completed transaction).

If the gas limit is set too high and there is still some gas left after performing the operation, it is immediately sent back to the operation generator. If the transaction is not completed because the gas limit was too low, everything returns to its original state, while the miner still gets the reward. It means that the operation is almost non-existent and the user is forced to start the process all over again.

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A standard gas limit for ETH transfer within the Ethereum ecosystem is 21,000 gasoline.

Ethereum gas prices

The price of Ethereum gas is expressed in gwei, which is worth 0.000000001 ETH. In other words, 1 Ether is equal to 1,000,000,000 Gwei.

ethereum gwei gas tableethereum gwei gas table
Source: Investopedia

The cost of one gas can vary depending on how busy the network is. It usually hovers around 20 gwei, but often increases if the system gets too much traffic. It happens because many transactions compete for the same block at the same time. Several useful platforms such as Etherscan can help calculate the amount of gas you need for a given transaction and the current price of that gas.

Why can gas costs be high?

Gas fees on the Ethereum network can sometimes be quite high. Not falling out of the blue: there are several reasons for this. One of the most important factors is the overall demand for transactions. When many people try to execute transactions at the same time, miners must choose which transactions to process first. They typically prioritize transactions with higher gas rates, which leads to more competition for block space and drives up prices.

Gas costs are calculated by multiplying the gas price (the fee per unit of gas) by the amount of gas used for the transaction. So when there is a lot of activity on the network, these costs can quickly add up.

Concerns about Ethereum gas fees

Rising Ethereum gas fees have become a major concern for network users. What was once a relatively inexpensive transaction platform has now become unaffordable for many users, especially those who regularly transact or interact with decentralized applications (dApps) on the network. The spike in gas fees since early 2020 can be attributed to the growing popularity and adoption of Ethereum, as it led to increased network congestion and competition for block space.

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With the implementation of proof-of-stake through the Merge and the Beacon Chain, there was hope that gas costs would drop as the network transitioned from proof-of-work mining. But even with this transition, gas rates sometimes still remain high due to continued demand for and use of the network. This issue has led to criticism of Ethereum’s scalability and sustainability as a platform for decentralized applications, prompting developers and users to explore alternative solutions or layer 2 scaling solutions to limit high transaction fees on the network.

Strategies to Reduce Gas Costs

Reducing gas fees can make your Ethereum transactions more affordable. Here are some effective strategies:

  • Time your transactions: Gas prices fluctuate throughout the day. Try to transact during times of lower network activity to save on costs.
  • Test before shipping: Use tools to simulate your trade before executing it. This can help you understand potential gas costs and avoid overpaying.
  • Use cost-saving apps: Some applications and wallets are designed to optimize gas consumption. Look for those that help you minimize your gas costs.
  • Discover other networks: Consider alternative layer 1 networks that offer lower transaction costs. These can provide similar functionality to Ethereum, but at a fraction of the cost.

Disclaimer: Please note that the content of this article is not financial or investment advice. The information contained in this article is solely the opinion of the author and should not be considered trading or investment recommendations. We make no guarantees about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional random movements. Any investor, trader or regular crypto user should research multiple points of view and be familiar with all local regulations before making an investment.

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