# What is gas/gwei in Ethereum and how to calculate gas fees ?

Eth gas fee calculator -> https://ethgasstation.info/

## What is gas in Ethereum and how does it affect the network?

The native cryptocurrency Ether (ETH) powers the Ethereum network. So whenever you want to transfer money to another address, the concept of gas, gas limit, gas price will be linked to the execution of an ETH transaction.To understand how gas works in ETH, it is best to understand the basics. In a fundamental analysis, Ethereum is connected to an extensive network of computers that store and process all transactions on the Ethereum network. At the same time, these functions are supported by smart contracts that have been created to carry out trades, including transferring funds and conducting settlements without intermediaries. But for all of this to work, you need gas.

## What is gas in Ethereum (ETH)?

In theory, gas is the unit of measurement for the computational work of transactions or smart contracts that miners perform at their own expense to keep the Ethereum (ETH) network running.

A unit of Gas separates the computational value of the Ethereum network from Ether. These units are immutable, depending on the final values used by the miner to perform the transaction. The gas used is directly proportional to the complexity of the transaction. For example, suppose you wanted to perform a normal transaction – sending ETH to another person. This would cost 21,000 gas, but sending an ERC-20 transfer could cost much more in computation because the transaction is much more complicated.

If a transaction is complex and requires 12,500,000 gas to complete, that unit can only hold that transaction once the miners have completed it. This is because that transaction fills an entire block.

## What is the price of gas in ETH?

The price of gas is the ether price per unit of gas to be paid. Typically, the price of gas is defined in nanoether, nano, Shannon, or “Gwei” (1 ETH = 1×1018 Wei). The smallest price unit in ETH is called “Wei”. However, the price of gas is usually estimated at 1,000,000,000 because 1 Gwei is equal to 109 Wei.

Unlike the gas limit, traders can set this value to adjust the speed of transaction confirmation. Mainly because it is a crucial value that determines how fast a miner will execute a transaction. This value can be set manually or selected from recommended websites such as EtherScan or ETCHGasStation.

Typically, the payment is taken from the sender’s wallet. Therefore, in order to validate the transaction, you must have an amount greater than the amount to be sent. The remainder is used to cover the commission on Ethereum’s virtual machine resources and to measure the computing power on this network.

In contrast, Ethereum’s transition to Ethereum 2.0 meant a switch from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS), which means that gas fees are now paid to stackers instead of miners.

## Does ETH gas have a limit?

The gas limit and the gas fee are important elements. However, they are not comparable, mainly because different types of transactions have different gas limits. The gas limit is the maximum amount of gas you are willing to pay to complete a transaction. For example, the mpg limit is an estimate of how much gas your car needs to travel 80 miles. Ideally, this value should be higher than your actual consumption. Otherwise, you won’t make it 80 miles.

In general, there is no gas limit at ETH. However, the higher the gas limit, the more computation is required to complete the transaction. While the gas limit of 21,000 units is the standard for ETH transfers, there are times when more gas is needed for complex tasks. Therefore, experienced users, such as developers, or automated wallet recommendations should set the value instead of the user.

Note that you must confirm and execute the transaction, even if it is inactive. The maximum fee you want to pay for the transfer is set as follows

## Gas Limit x Gas Price

The ETH Gas Station is useful for estimating the maximum transaction fee for a given gas limit and gas price at a given time, since the price of gas is constantly changing and the complexity of transactions varies. Therefore, an automated gas calculator can be used to better estimate transaction fees. In addition, the automated calculation helps users to better estimate the time frame required for a miner to mine a block.

According to the Ethereum Yellow Paper, a typical transaction requires 21,000 gas. However, it should be understood that this is not a commission charged by MyEtherWallet or Metalmask, but a fee that miners receive for processing the transaction.

## Why does Ethereum need gas?

Like bitcoin, Ethereum 1.0 relies on the proof-of-work consensus algorithm, where the hash rate of miners determines the security of the system. Miners are rewarded for doing so. There is a direct correlation between the security of the network and the amount of transaction fees a miner can earn. The more they earn, the more stable the system becomes. With more miners working in a peer-to-peer network, the Ethereum network increases its hash rate.

In the Bitcoin network, the commission is set by users and miners. This creates an open market where transaction processing can be refused due to low commissions. However, despite these similarities, there are some significant differences between the two networks, for example, Ethereum supports a much wider range of features.

## What else is ETH used for?

When comparing bitcoin and Ethereum, it is important to note that the latter is much more than just a cryptocurrency and a means of payment.

The Ethereum network uses blockchain technology to provide an open software platform for everyone. Developers can use programming languages such as Solidity and Vyper technology to create smart contracts. These are self-closing agreements that can facilitate the transfer of money, content, property or anything else of value, subject to pre-defined parameters.

Ethereum users can also create their own decentralized applications (dApps). By connecting their applications to the blockchain via a smart contract, users can be assured that their code will run exactly as written, without relying solely on the developer. There are many applications running on the Ethereum platform, covering various areas such as job search sites, games, and more.

To run a dApp on the Ethereum blockchain, you have to pay a transaction fee. Thus, gas is not only considered a cryptocurrency, but also a fuel for creating decentralized applications on the network. Every action that takes place on the Ethereum network requires a different amount of computing power. The more resources and the more complex the transaction, the more ETH you have to pay.

While bitcoin focuses on payments, Ethereum offers its open source blockchain technology to developers and businesses who can use it to create new software. The Ethereum network is similar to the App Store, where developers can create their own applications to run on the network.

## How do gas and commissions affect a miner?

A miner who creates a block receives a commission for doing so. When creating a block, miners must decide which transactions to include in the block.

They can choose transactions in an unusual way. The user sending ETH must set the appropriate ETH gas price for the miners to motivate them to include the transaction in the block (since they get all the commission). Most miners have a fairly straightforward strategy. Generally, they collect transactions, copy them at the gas price from the highest level to the lowest level, and fill each new block with them.

The gas price must be high enough for the miner to add your transaction to the block. If you are in a hurry, you can set a higher price to bypass other transactions. Otherwise, you can simply set a price that is high enough for the miner to add to the block.

## How do I set the gas price?

The gas fee is the actual transaction fee. And the cost of the gas fee is the price of the gas used. The gas, the gas price, and the gas limit all give you the final transaction fee.

The gas fee is variable. For example, a transaction could theoretically require 25,000 gas, but in practice only 21,000 gas is used to process the transaction. The remaining gas is immediately returned to the party that sent the transaction. This feature becomes an additional source of income for miners.

Because Ethereum still relies on PoW consensus with limited bandwidth, gas prices can skyrocket when the network is congested. Ethereum 1.0 is capable of handling an average of 13-15 transactions per second, which makes it much more difficult, especially when the industry is in an uptrend.

As the current price of ETH fluctuates relative to the USD, typical transaction fees can range from half a cent to several dollars. For example, the growing interest in DeFi triggered an influx of transactions and eventually led to a sharp rise in the average price of Ethereum gas at the end of 2020. As a result, the average price of gas rose from 11.73835 Gwei on August 7, 2019 to a peak of 538.006 Gwei on September 17, 2020 – all within a year.

To set the optimal price for Ethereum gas, you should rely on the current state of your network and your personal transaction speed requirements. The higher the network congestion and the faster you need to process a transaction, the higher the gas price you will have to pay.

## Will high gas prices impact network stability?

Despite the challenges of high gas prices, the Ethereum network remains stable. However, expensive gas challenges the basic concept of the Ethereum network. Typically, high processing fees eliminate the possibility of microtransaction payments and reduce the chances of mass adoption of cryptocurrencies. Of course, Ethereum miners can benefit financially from this situation. However, these short-term benefits undermine the foundation of this network by making it impractical to process smaller transactions.

## How does the popularity of DeFi affect ETH fees?

The sudden popularity of decentralized finance in 2020 has increased the number of Ethereum users. Hence the increase in demand for ETH. Decentralized Finance (DeFi) is a term for financial services that rely on smart contracts to facilitate transactions between parties.

The popularity of DeFi has caused technical problems for the Ethereum network. Transactions from DeFi’s largest platform, Ethereum-based Uniswap, filled the system to capacity. As a result, transaction fees became incredibly high. Their number surpassed that of bitcoin, and the gap between the networks widened.

The development of the DeFi industry also spawned the concept of Yield Farming, which has become incredibly popular. It is a new method of earning rewards using decentralized money-making protocols. Users only need to invest in cryptocurrency to earn their percentage. The returns can be as high as 100% ~ 2000% p.a. on certain income pools in mid-2020. However, losses can also be severe if a smart contract protocol is used. Despite the risk, millions of people are interested in yield farming with potentially good returns.

## ETH scalability issues and solutions

Scalability was one of the problems with Ethereum 1.0. It led to higher gas prices and other serious problems during its existence.

Both Vitalik Buterin and the community recognized this problem and set out to move the network to PoS consensus. The project aims to implement sharding technology, which involves breaking the network into smaller pieces, or shards, to validate transactions and increase their speed.

Once Ethereum completes sharding, transactions will be processed by validators rather than miners. As a result, transaction speeds will increase. Fees will be reduced and the overall efficiency of the network will be much higher.

## Conclusion

Gas in Ethereum is an integral part of the network. It is used to reward network participants for maintaining the security and efficiency of the platform. Understanding how it is counted and used is crucial. This is especially important for those who want to delve deeper into DeFi and incorporate blockchain technology into their daily lives.

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