Gas Fees — What are they and do I need to pay them? — Ethereum Network
If you have tried to send Ethereum to someone, or even an ERC20 token such as Tron, EOS, Omisego, Augur, Golem or AgentNotNeeded (ANN) tokens, you will have been told to pay a ‘Gas Fee’. So what exactly is it?
To understand what the Gas fee is, you must first understand how proof of work blockchains work. The network is built up of verifyers, called ‘Miners’ which are simply just computers with a lot of graphics cards built for the purpose of verifying transactions and ensuring the network stays secure. Each transaction is listed into a block and then the block is given a unique identity (hash) number which is created by each individual transaction within the block. Each new block also contains the hash number of the block before it. Any change to a transaction or block, no matter how small, will alter the hash number therefore no previous blocks can be tampered with as it will be flagged by the network. Read more about Blockchain here.
Transactions that are made such as me sending you 1 Ethereum or me sending you 100 ANN tokens, are sent to a pool that are picked out by these computers (miners) that then run checks to ensure that the transaction is legitimate, that I actually own the assets i’m sending you and that I have the permission to send them, amongst other verification checks of course. When miners carry out this work, which is verifying the transaction, they are paid for doing so, and that fee is the Gas fee.
But you’re probably wondering why the Gas fee can be changed and why the amount can be varied… well the simple reason is for priority. When transactions are sent to the pool to be picked out by miners, they look for the one paying the most first, obviously… as they will be paid more. That’s why those paying higher Gas fees will have their transaction processed and added to the blockchain quicker than those paying a lower Gas fee. The Gas fee on the Ethereum network is always paid in Ethereum even when sending other tokens built on the Ethereum Network (ERC20) such as Omisego, AgentNotNeeded, Tron, etc.
To adjust the amount you pay as a Gas fee, you can adjust the price per unit of Gas, also known as the GWEI and the maximum amount of units of Gas you are paying, also known as the Gas Limit. This is where is gets a bit technical and more complicated than it should be, but blockchain is still at the development phase so in my opinion, everything in blockchain and crypto is more complicated than it needs to be.
The way of verifying transaction already exists for the VISA network which processes/verifies transactions you make using your debit/credit card, where VISA charge you or the merchant a fee to process that transaction. The difference is you don’t choose how much you pay, they just charge a fixed fee but also that they aren’t decentralised but in fact use central servers which makes the verification process faster. For perspective, here is a comparison of transaction speeds per network:
Though the Ethereum network in comparison is immensely slower, its selling point is that it is decentralised and uses blockchain which is arguably more secure and a more open/transparent model. So in short, the Gas fee is the fee you pay to the miner to verify your transaction. Now lets take a quick look at what the GWEI and the Gas limit is and how your transaction is affected when you change these parameters.
The transaction cost is calculated using the folowing formula: Gas price x Gas limit.
Here is an analogy taken directly from the MyEtherWallet website who are much better at explaining this part than I am:
“You can think of the
gas limit like the amount of liters/gallons/units of gas for a car. You can think of the
gas price as the cost of that liter/gallon/unit of gas.
- With a car, it’s
- With Ethereum, it’s
20 GWEI (price)per
To fill up your “tank”, it takes…
21000 units of gasat
Therefore, the total TX fee will be 0.00042 Ether.
Sending tokens will typically take
~50000 gas to
~100000 gas, so the total TX fee increases to
0.001 ETH - 0.002 ETH.” [Source]
Confused? Don’t worry, they provide a calculator… but if you’re still confused then welcome to what an industry looks like when it’s run by developers only haha.
Personally, I just set the GWEI (Gas price) to 13 and the Gas limit to 52,000 which works out to be roughly 0.000676 Ethereum (£0.30 on 11th June 2018). I’ve never had a problem sending a transaction successfully with the above. True, you may be able to save money by adjusting the GWEI and Gas limit correctly but to save a few pence, for me i’m not that bothered. It’s worth noting that i’ve never sent a transaction of more than 10 Ethereum or 5 million ANN tokens at a time so please don’t rely on what I personally do when sending your own transactions, do your own research and calculations.
Finally, you may be wondering how you actually pay a Gas fee. Well, simply just have the required amount of Ethereum in the same wallet you are sending whatever crypto you are sending to someone. It will take the amount from that Ethereum.
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