Gas represents a fee required to successfully conduct a transaction or carry out a contract on the Ethereum blockchain. In most cases, gas fees are a tiny fraction of the ETH cryptocurrency, with denominations known as gwei.
Gas is a payment for validators providing resources needed to conduct transactions.
The gas price depends on supply, demand, and network capacity at the time of the transaction.
An Understanding of Gas in Ethereum
The introduction of gas comes as a way of compensating miners for the work done on maintaining and securing the blockchain.
After the proof of stake (PoS)in September 2022, the gas fee has become a reward for staking ETH and taking part in validation. Thus, the more a user stakes, the more they can earn.
A gas limit refers to the maximum work one estimates a validator to do in one transaction. Thus, a raised gas limit means the user is in a belief that the transaction requires more work.
On the other hand, gas price means the price paid per the amount of work done. Therefore, a transaction cost comes as the gas limit with an addition to the gas price.
The more one pays, the faster a transaction takes to complete. The lower a user estimates the gas limit they offer, the lower the priority in the queue of transactions.
Analogy: Let us take, for instance, you are standing in a line at a coffee shop and notice there are 4 people in front. Take the four people as your wait time and your transaction fee. Let us assume that the coffee shop works like an auction, first serving coffee to the people who pay the highest transaction fee.
Besides, let us assume that 300 people are standing in line, probably because the coffee has a new flavor on their menu. The regular price of coffee is usually $8 with a $2 transaction fee. Because of the demand, the new average transaction fee now becomes $50. You may think it is outrageous. You decide to pay the $2 regular fee and wait the whole morning, afternoon and evening. One decides to pay the $58 and gets their coffee before you.
Calculating Gas Fee
We calculate gas fees using the gas limit and gas price per unit.
Let us take that the gas limit is 20,000, and the price per unit is 200 gwei. Thus, the calculation would be as below.
20,000*200= 4,000,000 gwei, which is equivalent to 0.004 ETH.
How gas fees relate to transactions is very simple. Every transaction needs a fee paid to miners as an incentive for processing the transaction. ETH gas fee works differently from other cryptocurrencies.
The difference comes from the Ethereum Virtual Machine (EVM), a state machine. It comes with additional fees for complex transactions, such as those involving smart contracts.
Ethereum Gas Fees
Gas fees on the Ethereum blockchain work as incentives for users to stake their ETH. Staking is a way of securing the blockchain, keeping away dishonest behavior on the platform, mainly through transactions.
The amount to pay depends highly on the network traffic, supply of validators, and demand for transaction verification.
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