What Is Ethereum Gas

Olga Shirimova
May 6, 2020
ETH gas

The question “What is Ethereum gas?” is often baffling both for newbies and more experienced crypto users. Many people cannot tell if gas and Ether mean the same thing or if they are different payment units. Keep reading to have these gas issues explained.

Basic Definitions

To begin with, let’s make the main ETH concepts clear.

  • Ethereum is a blockchain platform created by Vitalik Buterin for running decentralized applications (Dapps). Each Dapp is based on a collection of smart contracts. Executing a smart contract or making a transaction is not free. To do it, a user pays a certain price in ethers (ETH).
  • Ether (ETH) is the in-house cryptocurrency and means of payment. Let’s see it as digital oil, blood, or another vital substance.
  • Gwei (nanoether or nano) is a tiny fraction of Ether. More precisely, 1 ETH is 1 billion Gwei.
  • Gas is a special measurement unit. When you want the system to do some work, you offer a certain amount of gas to its miners. If the task is urgent, you can boost the price of gas. Miners love it.

The basics made clear, it’s time to explore how all these components work together.

Denominations of Ether. Image source: Investopedia

Ethereum Cryptocurrency (ETH) and Its Price

As we said, ETH plays the role of working fluid circulating within the network. It’s one of the most popular cryptocurrencies.

If you go to a website like Coinmarketcap.com, you will see it at the top of the list, just below Bitcoin. They trade ETH on exchanges. The coin has a market price, affected by the law of supply and demand. In their turn, the supply and demand for ETH depend on many factors. Cryptos are very volatile: today a coin is worth $10 and in a couple of years its price may increase to $1,000. Or vice versa.

As we mentioned earlier, transaction fees in the ETH network are paid with ethers taken from your account. To make things transparent and more convenient for all the participants, Vitalik Buterin introduced the idea of gas in 2013.

Enter your gas limit and price before submitting a transaction. Image source: Stack Exchange

Gas: Basic Parameters

Unlike Ether, you cannot buy gas on a crypto exchange. Neither you can hold gas in your wallet in the hope its price will grow up. It is just a measurement unit to determine how much a certain operation will cost. 

What Is Ethereum Gas Limit and How It Works

The best way to explain how gas works is to compare your ETH transaction to a car. Say, this car has a tank with a capacity of 50 liters. It’s your gas limit (the max amount of fuel you take).

By setting this parameter, you determine the upper limit for the price you are ready to pay for processing your transaction. It’s like pouring 20 liters (or 5 gallons) of fuel into your tank because it seems enough for your trip. But how do you know what number would be okay for miners?

Setting Gas Limit: High or Low?

With the user’s convenience in mind, the network defines gas limits for various operations, depending on their complexity, the current demand for gas, and so on. It’s similar to estimating the amount of gas you need for a trip, based on the average fuel consumption of your car, the quality of the road, etc. You’d better use these rates as a reference. Thus, the gas limit for a standard transaction is 21000. If you doubt, you can set a higher gas limit (i.e. take extra fuel with you, just in case). It’s safe as the unused ethers will go back to your account.

Now, let’s see what happens if you ignore the numbers the system suggests and set a lower gas limit. Under this scenario, you save no money. The explanation is simple: miners have to cover their expenses and make some profit, as they are not here for charity. Their work has a certain price. Therefore, if you don’t offer them enough ethers, your transaction will run out of gas and fail. Just like a vehicle.

Why You Need Gas Limits

Many people wonder why they must enter this parameter before submitting a transaction. They argue that it would be logical to skip this step and let miners use as much gas as they need. After all, nobody wants to stop in the middle of the way just because their vehicle has run out of fuel.

This solution allows a user to avoid an unpleasant situation when, due to some error in the contract, they keep going around and around without any result. In this case, you may end up spending a big amount of money on nothing. Unfortunately, even if your transaction fails, there are no refunds. The miners have done their work and it’s fair you have to pay for it.

You can make the gas price higher or lower, according to your circumstances. Image source: ETH Gas Station

What Is Ethereum Gas Price and How It Works

Imagine you are going to submit a transaction. In a PoW system, you have to offer a fee to miners, who make all the necessary calculations to validate your transaction and add it to the next block. If you are in a hurry and want this transaction to be a priority, you can entice miners with a higher than average gas price. The term stands for the price of 1 unit of gas.

Setting Gas Price: High or Low?

While it makes no sense to increase a reasonable gas limit, you can increase the price of a gas unit. The average gas price is 12 Gwei, but you may correct it depending on your priorities. If you can afford to wait until some miner takes your transaction, lower the gas price. To balance your operational expenses, set lower gas prices for non-urgent transactions, and higher for important ones.

A higher gas price guarantees your transaction will be picked out of the pool among the first. Image source: Medium

Why Gas Is Important

Continuing our car analogy, the Ethereum network runs on gas and needs it to keep all the systems functioning. if you don’t have enough gas, you will never reach your destination.

Also, gas makes the Proof-of-Work mechanism transparent, convenient, and efficient. Important and urgent transactions are made a priority. Miners are aware of their computational costs and rewards and can see if the work is worth doing.

What Is Ethereum gas: Key Provisions

To sum it up, here are some important things to keep in mind:

  • Gas is not a currency/token. You don’t trade it on an exchange and cannot use it in a way you use regular cryptos. It’s just a metering unit, a smart method to determine miners’ fees.
  • Though you set a price in gas, you still pay transaction fees in ETH, as prices for a gas unit are expressed in Gwei. Normally, they range between 5 and 21 Gwei per unit.
  • The gas limit depends on the amount and complexity of the work miners have to perform to process your transaction. The system defines gas limits for different operations, making things easier for users.
  • The total transaction fee you pay depends both on your gas limit and the gas price. Roughly speaking, the gas price is equivalent to the hourly wage you offer to miners, while the gas limit is the max amount you are ready to pay them.
  • When you set a higher than average gas price, your transaction goes to the front of the line and gets processed rapidly. In some cases, it’s a waste of money.
  • If your gas price is too low (much below the average), no miner will ever pick your transaction from the pool.
  • Increasing your gas limit makes no sense if you want your transaction to be processed faster. It means no extra money for the miners — the unused gas remains in your wallet just like the unused fuel remains in your tank.
  • When the processing of your transaction takes more work than you are ready to pay for, the transaction fails (“out of gas” error). Note that in this case, you don’t get your money back because the work has already been done.

We hope this article managed to explain what Ethereum gas is and how it’s different from the ETH cryptocurrency.

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