Ethereum Gas and Transaction Fees Explained

gas fees in Ethereum

Not enough gas for a transaction! How many gwei is it? The gas limit is too low! Most users outside of the Ethereum ecosystem can’t wrap their heads around 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’ll talk about the Ethereum virtual machine, gas limits, and gwei sub-units, then discuss miners’ rewards for conducting transactions. We will also take a look at the gas pricing policy.

How Gas in Ethereum Works

Gas is a fee for any transaction in the Ethereum network and, at the same time, the measuring unit of computational effort that is required for particular operations. You’ll need a certain amount of gas in order to create or execute a smart contract, or do anything on the Ethereum platform for that matter. For those who want to know more about the network, here is a detailed article on Ethereum: What Is Ethereum About?

First, Ethereum virtual machine and the smart contracts that exist on it run on Solidity code. Every line of this code needs a little bit of gas to be executed. Think about your car and actual gas, the fuel: you’ll need a certain amount of gas to get to your destination of choice, and you have to buy this certain amount of gas at the gas station before parting. In a similar fashion, you have to fill up the “gas tank” of your transaction before it starts to be processed. 

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

Ethereum Gas Limit

gas fee image

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

The amount of gas needed for a particular transaction is predetermined by the number of code lines that have to be executed. An Ethereum user has to set a gas limit that covers the amount of gas spent on the operation. If they fail to do so, the transaction will not be completed, because the miners will stop executing it the moment it runs out of gas.

A bit like with your car: the moment there is no more gas in the tank, the car stops to move, and you can’t proceed to the destination of your choice (which is a completed transaction, in our analogy). 

If the gas limit has been set too high and there is some gas left after the operation has been executed, it will be immediately returned to the operation generator. If the transaction hasn’t been completed because the gas limit was too low, everything reverts to its original state, while the miner still gets the reward. It means that the operation has as good as never existed, and the user is forced to start the process from scratch.

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

Gas Price

The price of Ethereum gas is denoted in gwei, which is worth 0.000000001 ETH. The cost of one gas may vary depending on how busy the network is. It usually floats around 20 gwei (0.00000002 ETH), but often increases when the system gets too much traffic. It happens because many transactions compete for the same block at the same time. 

ethereum gwei gas table
Source: Investopedia

Several convenient platforms help to calculate the amount of gas you need for a particular transaction and the relevant price of that gas for the moment. 

Why Ethereum Uses Gas

The simple answer to that question is incentivization. Ethereum is based on the Proof-of-Work (PoW) protocol, and it needs miners to survive.  Miners will stay connected to the ecosystem only if they get something for their work, and that’s why there is a reward system in place. This fee in gas is exactly why miners keep mining blocks, processing transactions, validating smart contracts, and participating in the Ethereum ecosystem. You can read more about Ethereum’s smart contracts in our article Ethereum Smart Contracts Explained.

As for the latest news on the matter, last week Ethereum experienced a spike in transaction fees: gas increased by over 100%. It happened because the DeFi sector gained popularity and attracted lots of new users over the past few months. Lending platforms, stablecoins, decentralized exchanges, and other DApps are primarily built on the Ethereum blockchain. They create high traffic in the network, which leads to gas price spikes within it. 

ethereum gas source
Source: Ethereum Gas Station

Changelly provides instant access to over 160+ cryptocurrencies, including ETH. You can buy ETH with a credit card (Visa, MasterCard), bank transfer, or Apple Pay without any gas fees.  

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