This article explains the concept of gas, gas limits, and gas prices. This is an important feature of the Ethereum (ETH) Blockchain and ecosystem.
If you have done an Ether (ETH) transfer from one place to another or participated in an ICO then you are most likely familiar with the concept of gas in the Ethereum network. Understand the mechanics of gas and related terminology. Gas limits and gas prices are an important factor for conducting ETH transactions. But before diving into the details of gas, it’s important to have a basic understanding of Ethereum.
Ethereum is a huge network consisting of a large number of interconnected computers. This network is known as the Ethereum Virtual Network (EVN) which is basically a global supercomputer where all the transactions happening in the Ethereum network are updated and recorded to each computer. Ether (ETH) is the native currency of the Ethereum blockchain. ETH is different from Ethereum Classic; Ethereum Classic is a fork of the Ethereum Blockchain.
A revolutionary function of the Ethereum blockchain is the introduction of smart contracts. A smart contract is any pre-programmed contract with a set of self-executing rules and regulations without the need for any intermediaries.
Here is a simple explanation of smart contracts:
Why need gas?
The Ether (ETH) token is publicly traded on exchanges, and its market price can fluctuate rapidly. The generation of gas units is to separate the computational cost of work in the Ethereum network from the volatile market price of Ethereum because the computational cost does NOT change rapidly. Imagine you pay a flat fee directly charged in Ether when its market price is $10 and to send ETH you need to pay half of ETH ($5) a year ago. Now, the price of ETH is $1,000. Do you want to pay $500 (0.5 ETH) for the same transaction? That’s why the gas system was created.
What is Gas?
Gas is a unit of measurement for the computational work of transactions or smart contracts in the Ethereum network. This system is similar to using kilowatts (kW) to measure electricity in your home; the amount of electricity you use is not measured in dollars but instead in kWH or Kilowatts per hour.
It is important to understand that different types of transactions require different amounts of gas to complete. For instance, a simple transaction of sending ETH from one place to another costs 21,000 Gas while sending ICO tokens from your MyEtherWallet (MEW) wallet costs more since the higher level of computation has ended. Here is a guide on how to open a MEW wallet, which supports ETH and ERC-20 coins.
Gas Limit refers to the maximum amount of gas you are willing to spend on a particular transaction. A higher Gas Litmit means more computation work has to be done to execute the smart contract. Standard ETH transfers require a gas limit of 21,000 gas units.
The more complex the commands you want to execute, the more gas you will have to pay. You can see this in action when participating in an ICO that requires you to deposit ETH into its smart contract or when you want to withdraw your ICO money for an exchange; the transfer fee is much higher than the default Gas Litmit 21,000. This is because ICO smart contracts possess much more complex codes and require more computation than a simple ETH transfer.
Gas Litmit acts as a safety mechanism to protect you from running out of funds due to error codes or errors in smart contracts.
Gas price refers to the amount of Ether you are willing to pay per unit of gas and is usually measured in “Gwei”. It’s similar to the cost per liter of fuel you pay for refueling.
Wei is the smallest unit of Ether and a Gwei consists of one billion wei. Before entering the Gas price you want to set, check the current gas price from ETH Gas Station.
Here is an explanation of the terms:
Std (Standard) Cost for Transfer: Average user fees to transfer ETH – in USD – for a standard priority transaction (usually less than 5 minutes wait time)
Gas Price Std (Gwei): The average fee that users pay to transfer ETH – in Gwei value – for a standard priority transaction (usually less than 5 minute wait time)
SafeLow Cost for Transfer: The average user fee to transfer ETH – in USD value – for a low priority transaction (usually less than 30 minutes wait time)
Gas Price SafeLow (Gwei): The average user fee to transfer ETH – in USD value – for a low priority transaction (usually less than 30 minutes wait time)
Median Wait(s): Average wait time for a single transaction in seconds
Median Wait (blocks): Average waiting time for a transaction in blocks
Can I speed up my transaction?
If you are wondering about the difference between low priority and standard priority transaction, here is a table extracted from ETH Gas Station to help you better understand:
You can actually choose the priority of your transaction. Miners will work on the network and execute transactions that offer higher gas prices, as they will receive the fees you pay. Therefore, they will be incentivized to prioritize transactions with higher Gwei. If you want your transactions to be done at a faster rate, then you must be willing to pay higher gas prices. Based on the above table, you have to pay 8 Gwei if you want your transaction to be completed within 2 minutes. It all depends on your urgency.
Let’s take a look at an Ethereum transaction example to see how the concepts of gas, gas limit, and gas price come together:
Looking at this transaction at Etherscan, we can see all the information related to gas. Here, their meanings are:
Gas Limit: The maximum amount of gas the user will pay for this transaction. The default amount for a standard ETH transfer is 21,000 gas
Gas Used by Txn: The actual amount of gas used to make the transaction. Since this is a standard transaction, the gas used is also 21,000
Gas Price: Amount of ETH a user is prepared to pay per unit of gas. The user chose to pay 8 Gwei per unit of gas, which is considered a high priority transaction and will be executed very quickly.
Actual Tx Cost Fee: This is the actual fee the user will pay for the transaction in Ether value (USD value in brackets). Not bad; the user paid a total of 14 coins for his ETH to be transferred in less than 2 minutes!
To summarize, the final formula to calculate the amount of fees you will pay for a transaction is:
Transaction fee: Gas Used by Txn * Gas Price
From the above example, we can see that the actual gas consumed when making the transaction is 21,000 gas while the gas price selected by the user is 8 Gwei (0.0000000008 ETH). Multiply both metrics together and you’ll get the actual cost of making the transaction, up to 0.000168 Ether ($0.14). It is important to note that the gas limit can (and often is) more than the actual gas used in the transaction. During the ICO period, the average gas price will tend to be exponentially higher as people will flock to participate in the ICO. This will lead to more people increasing gas prices for a better chance of confirming ICO transactions.
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