What is Gas?
Each Ethereum transaction requires a fee since it requires computing resources to complete. Gas is the charge necessary to complete an Ethereum transaction.
Ethereum’s original coin, ether, pays for gas (ETH). Gas costs expressed in gwei is an ETH unit worth 10^-9 ETH (0.000000001 ETH).
Before the London Upgrade
The London Upgrade changed how fees on trades got computed on the Ethereum blockchain. The following is a rundown of how these things worked:
Let us pretend Charity owed Sam 1 ETH. The maximum gas in this transaction is 21,000 units, and the price for each gas is 100 gwei.
Gas units would be the full fee (max. gas) × price of gas/unit. That is, 21,000 × 100 = 2,100,000 gwei or 0.0021 ETH.
The network will take 1.0021 ETH from Charity’s account when she sends the money. Sam would receive 1.0000 ETH. The network gives 0.0021 ETH to the miner.
Post London Upgrade
The London Upgrade got introduced on the 5th of August, 2021. The purpose is to make Ethereum transactions more reliable for customers. Some of the top improvements brought by this modification include:
- A reasonable estimation of the transaction cost.
- Faster transaction inclusion.
- Offsetting ETH allocation by burning a proportion of trading fees.
With the update of the London ETH network, each block has a standard cost. This base cost is the lowest price per gas unit in that block. The network determines this based on block space demand. The network expects users to set a priority fee (tip) in their trades because the network burns the transaction charge’s base fee.
The calculation for the total transaction charge is as follows: (Base fee + Tip) × (Gas limit).
The Ethereum network expects most wallets to set the Tip to pay miners. This Tip is for executing and propagating user transactions in blocks.
Let’s pretend James owes Tina 1 ETH. The maximum gas in this transaction is 21,000 units, and the floor cost is 100 gwei. James adds a ten-gwei tip.
We may compute this as 21,000 × (100 + 10) = 2,310,000 gwei, approximately 0.00231 ETH.
James’s wallet will get debited 1.00231 ETH when he sends the money. Tina will receive 1.0000 ETH as a reward. The miner receives 0.00021 ETH as a tip. At the same time, the network burns 0.0021 ETH as a base fee.
Conclusion: Why do Gas Fees Exist?
“Gas” is the fundamental unit of computation. In a nutshell, gas fees contribute to the Ethereum network’s security. The network prevents bad people from spamming it by charging a fee for each trade. Each transaction should limit how many code steps it can execute. This is to avoid endless hostile loops or other computational waste in code.
