Like any machine, the Ethereum (ETH) blockchain needs a power source to keep it running. For ETH, it runs off of fuel called gas to process all transactions on the blockchain. Any interaction on the network requires gas, whether it be for sending ETH, ERC20 tokens, or using any smart contract. All gas fees are paid in ETH and they “fuel” the network so to speak.
Why do we need gas?
- Transactions on the Ethereum blockchain need to be validated by the nodes of the network to see if they are valid. If the transaction is indeed verified as valid then it is sent to the pool of pending transactions. Miners then have to validate and execute each transaction using their record of the Ethereum blockchain.
- Ethereum’s gas system is based off supply and demand as the miners have operating costs they need to cover. Miners need to pay for the costs of the hardware they purchased, maintenance, and other costs like any other business.
- It costs miners a significant amount of money to operate to validate transactions, mining blocks, and storing data. The highest bidders always have their transactions processed first.
The costs of gas fees
- Gas fees are broken up into two parts, the gas price and the gas limit. The total transaction fee are calculated by multiplying the gas price by the gas limit. The units of ETH which are used to pay gas are called GWEI.
- The gas price – is the quantity of Ethereum that you are wanting to spend on the interaction.
- The gas limit – is the amount of units of gas that you are choosing to spend on the transaction.
- The more gas that is used in the transaction, the sooner it will be processed over other transactions which use less gas.
- If you need your transaction to be processed quickly, we recommend visiting ethgasstation.info first to see what the going rate of the cost of gas is. If you use a lesser amount of gas than the going rate, your transaction may be stuck for some time, or you could be front run on a decentralized exchange such as Uniswap.