Analogous to how cars require Gas to move from one location to another, the same way tokens on Ethereum blockchain require a small unit of Gas in form of the transaction fee to exchange hands or move from one wallet to another.
Ethereum is a smart contract enabled-blockchain that enables any crypto project or enterprise to deploy a decentralized application (DApp) on the blockchain. All DApps on the Ethereum blockchain use the Ethereum protocol and are subject to gas fees before they can be properly executed.
In literal terms, gas is the fuel that enables the Ethereum smart contract to keep running. Gas is paid in ETH
Why Ethereum Needed Gas To Function
Again, let’s borrow a leave from how the gasoline-powered car works. Cars need gasoline to move from point A to point B, and in most cases the amount of gasoline consumed by the car could be dependent on the distance covered, all things being equal.
This implies that the number of liters of gas required for a 100km distance should be lesser than the amount required for a distance of 20km. While this number of liters is fixed for a given distance traveled, the cost of gas could differ depending on the pump price.
Similarly, the gas spent on the Ethereum blockchain is required to pay for the computational power needed to move such a transaction from wallet A to wallet B. When a transaction is carried out, it consumes someone’s computing power. ETH miners provide this computational power.
Miners on the Ethereum network charge a certain amount of fee required for a smart contract operation to be executed. The cost of a transaction could vary largely from less than a cent to a few dollars depending on the congestion of the network. The more congested the network is the larger the computational power required to execute the transaction.
How Ethereum Gas Is Priced
The cost of Ethereum gas is priced in Gwei. synonymous with how a gallon of gasoline is priced in dollars. The total cost of the gasoline could be calculated as the number of gallons bought multiplied by the cost per gallon:
The total cost of gasoline = Number of gallons bought * cost per gallon.
For Ethereum Blockchain:
The total cost of transaction = The Gas Limit * Gas Price (Gwei).
Similar to the number of gallons of gasoline required to drive through a given distance, the Ethereum Gas Limit is the number of units of gas required to push a transaction through the blockchain.
Just as Bitcoin is denominated in Satoshi, so is Ethereum denominated in Gwei. 1 Gwei is equivalent to 0.000000001 ether.
For a translation that requires a 21000 unit of gas (Gas Limit) for a price per unit of 50 Gwei, the total cost of executing such a transaction will be valued at 0.00105 ether.
In simpler terms, this is calculated as follows: 21000 * 50 (0.000000001 ether) = 0.00105 ether.
Going with an ETH price of $144, 0.00105ether will cost thus in dollars: $144 * 0.00105 = $0.1512.
Therefore for a transaction that requires 21,000 Gas Limit and 50 Gwei at an ETH price of $144, the user will pay $0.1512 to get the transaction completed.
Interestingly, users can decide to lower their gas limit, thereby limiting the number of units of gas they are willing to spend in a given transaction. They could as well set the amount (Gwei) they are willing to pay per unit of gas.
Miners computing power costs a reasonable amount of money, so they are more likely to pick up transactions with a larger fee before picking transactions with a smaller fee. In the event of a congested network, users might be required to execute their transaction using a high fee, else the transaction will fail. Miners are at liberty to reject a transaction with a low fee.
It is also important to note that sending a smart contract token is usually more expensive than sending a certain amount of ETH. For example, sending a small amount of SaTT token will cost higher than sending a small amount of ETH. Most times this difference goes unnoticed due to their minor difference.
For urgent transactions, a higher fee is recommended to ensure that the transaction is executed just in time. The ETH Gas Station displays the average transaction fee in real-time, this could serve as a reference point to check the range of fees required to complete a transaction in a given timeframe.
