In this article, I will explain what Gas in the Ethereum Blockchain is, why trading fees can increase, and what factors can influence their decrease.
What Is Gas (Ethereum)?
GAS is the unit of measurement used to express the computational power required to successfully carry out a specific command or action on the Ethereum Blockchain.
Thus, each action will require GAS, from querying a balance to sending a transaction. To draw an analogy, we could think of it as the fuel needed for a car to travel from point A to point B.
However, the amount of GAS required to apply each condition within a Smart Contract will not tell us exactly how much we have to pay to meet these requirements. To find out the cost, we will have to multiply the amount of GAS assigned to a specific operation by the cost of such a unit at that particular time, that is, by the GAS Fee.
What Are Gas Fees?
To put it simply, if GAS is the fuel, the GAS Fee is its price per unit.
Therefore, Fees refer to the payment or cost required to successfully conduct a transaction or run a contract on the Ethereum Blockchain.
That price is estimated in subunits of the cryptocurrency ETH (Ether), often called gwei or, in other cases, nanoeth. To put it simply, the Gwei is for ETH about what the Euro cents are for the Euro. A single gwei equates to 0.000000001 ETH(10-9ETH).
These fees are used to allocate resources of the Ethereum Virtual Machine (EVM) so that any decentralized application on the network, including Smart Contracts, can be self-executed both safely and in a decentralized fashion.
How Do Gas Fees Vary?
Ethereum miners, that is, those who perform all the important tasks of verifying and processing transactions in the Ethereum network, receive GAS fees in exchange for their computing services.
If the price limit is too low, miners may prefer to ignore such transactions. As a result, the price may fluctuate with the supply and demand for processing power.
I remind you that GAS is a concept that exists only inside the Ethereum Virtual Machine and that the user will pay for the transaction in ETH or subunits of it.
The reason is that it is desired to clearly segregate the unit of measurement for the required computing power from the price of the cryptocurrency ETH so that fluctuations in the price of ETH do not change the actual cost of transactions.
In theory, if the network activity is always the same, but the cryptocurrency price rises, gas fees should decrease so that the cost of the transaction converted to Ether can remain the same when it is converted to dollars or any other fiat currency.
In reality, the increase in network activity actually causes the cryptocurrency price to rise.
How Does Network Activity Affect Transaction Costs?
Any transaction in the Ethereum Blockchain ends up in Mempool, an area of pending transactions, from which they are confirmed by miners and thus entered into the next block of the Blockchain.
This is also where a factor called Maximum GAS Limit comes in, i.e. a predetermined number of transactions that can be included in a block. Therefore, depending on this limit, miners cannot exceed the number of transactions. Naturally, miners will prefer to validate transactions with a higher fee.
For example, if there are 1000 pending transactions in that Mempool, but the limit allows the validation of only 300 transactions whose total GAS falls within the maximum gas limit, then miners will prefer to sort out of the 1000 transactions only 300 to validate, and will select the ones that are the most profitable for them.
Therefore, users who want their transactions to have more chances to be validated have to pay more GAS so that they surpass the others. When a large number of users have urgent transactions and basically over-bid the cost, it’s normal for the GAS price to go up.
Conclusion
On the Ethereum Blockchain, GAS refers to the cost required to perform a network transaction. Miners determine its price based on the supply and demand for network computing power requirements in the processing of Smart Contracts and other transactions. GAS fees are denoted in small fractions of ETH called gwei.
The value of gas for network processing is determined in relation to the urgency of making transactions and is different from how the market price reflects the value of the ETH cryptocurrency or how it evolves according to the buy/sell dynamics.