Gas, Ether and ERC20 made really simple

As part of our ongoing look at Ethereum, we’re at looking at the building blocks of Ethereum; Gas, Ether and ERC20.

Overview

To understand how Ethereum functions, you need to understand these three concepts: Ether, Gas, ERC20. Collectively they help power, incentivise and allow others to build their own tokens on top of Ethereum’s blockchain.

Ether 🛢

Ether can be thought of as digital oil for Ethereum. To power your car, you need to buy petrol. To power your transactions on Ethereum, you need to buy Ether.

o go back to the car analogy, it’s how much petrol is required to make the engine work and power the car to the destination you’re looking to get to.

With Bitcoin, there can only ever be 21 million bitcoins. In Ethereum’s case, there is no limit to how much Ether can exist. I.e. there’s no limit to how much petrol can be produced.

In order to calculate how much Ether is needed to make a transaction work, the people behind Ethereum created Gas.

Gas

Gas is the cost the computers charge in order to process your transaction.

If you want to send Ether, interact with a smart contract or anything else that needs to be recorded on the blockchain, you have to pay for it. 💰

That payment is calculated in Gas, and is paid in Ether.

In Bitcoin Mining ‘BITCOIN MINING’ , we learned that miners charge transaction fees to process people’s transactions. It’s similar here. An incentive is created to encourage an Ethereum miner to process your transaction quickly. 🏃🏼‍♀️

That Gas price rises and falls, depending on how busy the Ethereum network is, i.e. how many transactions are needing to be verified.

ERC20

As Ethereum’s popularity grew, and lots of people started creating their own Smart Contracts, a problem arose: how do you get these different contracts to interact with each other?

As everyone came up with their own rules about their smart contracts, you needed to be a genius to work out how to make two different contracts, with two different sets of rules work together.

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