What do we mean by gas? Gas is simply the fee paid by the user at the time of a transaction on the Ethereum blockchain. The price is set in gwei (denomination of Ethereum’s native currency, Ether), where 1 gwei is equal to 0.000000001 ETH. Paying gwei is therefore synonymous with fueling a transaction: by doing so, the computational energy needed to carry out that particular transaction is generated.
The proof-of-work system of the Ethereum 1.0 network is a computation provided by miners, who use special hardware to compete for the ordering and processing of Ethereum blocks containing large amounts of transactions. In return for their service, miners can earn rewards in ETH and transaction fees through gas payments.
What will change with Ethereum 2.0? Simple: the system becomes proof-of-stake. This transformation will involve the gradual elimination of mining in favour of staking, leaving it up to the stakers themselves to deposit ETH and compete for block rewards and gas fees.
Moreover, each activity will have its own gas cost: direct sending of ETH or an Ethereum ERC20 token from one wallet to another, smart contract interactions, meta-transaction processing, etc. will become cheaper. In other words, the cost of gas will vary depending on the complexity of the on-chain activity.
Who sets the Ethereum fees?
Ethereum users send transactions with the required gas prices, then miners choose the transactions to be mined in bulk. This shows that Ethereum’s gas prices are dynamic: in other words, they are the result of the balance reached between what users offer and what miners accept on an ongoing basis.
To sum up, the more transactions users request at a given time, the higher the gas prices will be, due to the fact that Ethereum’s block space gradually becomes scarcer. A transaction sent at higher gas prices will therefore correspond to faster processing.
The cost of a transaction can be calculated at any time by multiplying the current gas price by the current Ethereum gas limit.
What is the Ethereum gas limit?
So what is the Ethereum gas limit? It certainly represents a key component of it, as it is the maximum amount of gas units an individual is willing to spend on a transaction. This limit is thus used in order to guarantee the execution of transactions. Furthermore, since each transaction will not always correspond to the maximum amount, unused ETH will be fully returned to the user’s wallet.
For basic ETH transactions, the standard gas limit is 21,000. Considering a hypothetical transaction sent when the gas is 100 gwei, it will be possible to calculate the cost of the transaction by multiplying 21,000 (gas limit) * 100 (gas price) x 0.000000001 (gwei denomination). The result will be equal to 0.0021 ETH.
Ethereum also has a network-wide gas limit for its blocks, in order to cap the amount of transactions per block. Over the course of time, miners have repeatedly voted to increase the size of this limit, succeeding in June 2020 in obtaining an increase from 10 to 12.5 million.
How to set an Ethereum transaction fee
When making a transaction on Ethereum, it is possible to optimize the price by sending transactions with basic gas fees, but also optimize the time by sending transactions with high gas fees.
One of the positive aspects of some wallets, such as MetaMask, is the possibility that users have to opt for “slow”, “medium” or “fast” gas fees at the very moment of the transaction. While the first two options make sense in the case of occasional users, the third and therefore faster option is the only one to be considered in the case of decentralized traders who need to execute the best prices in the shortest time.
However, it should be kept in mind that MetaMask and other wallets do not always accurately estimate gas prices and transaction times, especially in case of rapid changes in network activity. If any doubts arise, it is then also possible to set up the gas prices manually and accurately by accessing the “advanced” tab of the portfolio. The same applies to viewing up-to-date prices from online resources such as Gas Now.
There is one way to save money on Gas, and that is by using the CHI token launched by 1inch.exchange. But more on that in future articles!