Blockchain Ethereum requires Gas to keep itself running. Each transaction on the Eth network requires a certain amount of gas, depending on the current demand for gas and the size and speed of the contract one is trying to execute. In this article, you will learn exactly what Ethereum gas is and how it is used in the ETH network.
To understand how gas works, you need to know everything about Ethereum and Ether. Make sure you understand what smart contracts are. If you already know the necessary basics, you can easily understand the operation of gas and why it is necessary for the Ethereum network.
Bitcoin is currently the unquestionable king among the cryptocurrencies. So why are there more and more of them coming up with new solutions?
The problem with BTC, and whole first-generation blockchains is that they only allowed for monetary transactions. There was no easy way to add any conditions to the transactions. Adding conditions required a very complex script, which would have made it impossible for a large part of the population to benefit from this solution. That’s how Vitalik Buterin’s idea of a smart contract was born. Ethereum is a blockchain of second-generation.
The blockchain of the third generation is already appearing. However, focusing on the first and second generation, we can see the following differences: the leading 1st generation blockchain – Bitcoin has a larger community and is more familiar for the average person, but 2nd generation blockchain (like Ethereum) uses more optimized solutions and is easier to use.
Blockchain Ethereum supports computationally-rich contracts, written in Turning-complete language. This has allowed all the parties involved to service contracts in which all parties can be confident of their funds, that they will be using them for planed purposes. The solution needs to be deterministic, terminable, and isolated. That’s what we call a smart contract.
To make it easier to understand what gas is, it can be compared to the petrol needed for a car to go. Transactions requiring different amounts of gas are like different cars requiring different amounts of petrol depending on their size and speed. In addition, when refueling, you must have enough petrol (gas) to reach your destination (complete the transaction). When you are refueling you are paying the gas station (miner) a certain amount of money (Gas fee). If that is understandable, I will now discuss the details.
Gas is a very important innovation in the world of cryptography. It creates a fairer and more transparent mining space while improving the efficiency of the Proof of Work system.
Proof-of-Work, also known as PoW, is the consensus algorithm in a Blockchain network. It is used to confirm transactions and produce new blocks on the chain. PoW miners compete against each other to get the reward.
The main working principles are a complicated mathematical puzzle and a possibility to easily prove the solution.
There are many kinds of mathematical puzzles. The answer to the PoW problem or mathematical equation is called a hash. They always require a lot of computing power to solve them. As networks develop, they become more and more difficult, and more hashrate power is needed to solve it.
The gas is used for the fee necessary to conclude or execute a smart contract on the Ethereum network. It is valued in ether units, otherwise known as GWEI. It is used to allocate resources of the Ethereum Virtual Machine – EVM. In this way, smart contracts can be self-executed in a safe way. Simplifying, Gas fees in Gwei are payments made by users to cover costs for the computing energy required to process and validate transactions on the ETH blockchain.
Smart contracts are innovation and give blockchain new possibilities. But there are some disadvantages of this solution. Increased flexibility is a new set of costs and threats for the miners and verifiers which execute these programs. Turing-complete programs cannot be statically analyzed to determine runtime or resource costs.
Such complex programs can cost much more than the miner is willing to bear. Gas Ethereum is a solution to this problem. It is a compensate for these additional costs for miners. The initiator of a program execution must pay for resources thus consumed.
The Ethereum blockchain requires ETH gas as a fee for each transaction or smart contract. Gas, as mentioned previously, is a fraction of an Ethereum token, and is used to pay the miners securing the transaction. It’s a fee for their work. The fee must be appropriate in relation to the work, as miners will abandon work if they do not receive sufficient compensation.
How much should I pay for the transaction? It all depends on what the gas demand is at the time of the transaction. The size and speed of the contract we want to execute are also very important. So there are no predetermined gas fees.
However, in most cases, the wallet automatically fills in the gas limit for the user. Simple transfers typically require a limit of 21 000 units. The most complex interactions with smart contracts may exceed 200 000 units.
Miners prefer to choose smaller transactions because they are more profitable for them. For example, if a miner would have a choice of 2 transactions with a Gas limit of 21,000 or one with a Gas limit of 42,000, it would be more economical for him to choose 2 smaller transactions.
This is because the block gas limit is set in roughly 10,000,000 gas. Miners make transactions with high gas limits and waste part of it. In the case of transactions with high gas limits, a large part of them will usually be refunded by the miner, which makes them unprofitable.
How are the fees charged? Most of the smart contracts that run in the EVM are coded using Solidity. Each and every line of code in Solidity requires a certain amount of gas to be executed.
The price of Gas is the amount of Gwei that the user is willing to spend on each unit of Gas. The more the sender wants to pay for the gas, the more important his Ethereum deal is, because it makes the reward for the miner higher. It is good to set high gas prices, for example, when participating in an ICO, where faster processing of the transaction will increase the chances of switching on.
Setting a low gas price is a good solution when the sender is not in a hurry, for example when moving their own funds between their portfolios.
To calculate the amount of Ether, the Gas Limit, and confirmation time in USD or ETH you can use online services called ETH Gas Station, where you can see recommended Gas Prices in Gwei.
There is also a service called Gas Price Oracle. This is a tool tries to make a prediction on the Gas price that needs to be paid to get a transaction. Gas Price Oracle is based on transaction data from last hour.
Gas consists of two components: gas price and limit. Gas limit determines how many units of a gas user is willing to paying for the transaction. It is something like the budget for each transaction. While the Gas price is denominated in GWEI and it determines the Gas price.
With using low and high gas limits, developers can be confident that their smart contracts run reliably on the network, without overcharging. This is done by paying sufficient compensation to the miners without losing the additional amount of gas, which would otherwise be lost by the miners after securing it.
After the sender of transaction specify Gas limit it goes to the network. When miners receive a pending transaction they have a few choices.
If there is an accurate Gas limit they can accept the transaction by processing the instructions with their computers, using electricity in the process, and keep the attached fee set by the sender. If there was too high Gas limit they can also refund some of it to the sender. However, if the transaction needs more Gas than is in the limit they can decline the transaction. This depends on the current limit that is on the market.
An appropriate amount of gas must be used to pay for each transaction; if the amount of gas is too low, the transaction does not occur since miners do not receive enough compensation and abandon the job. Trying to save gas by lowering the limit is pointless because it won’t change the amount of resources needed to process transaction. The transaction will just run out of gas and you’ll have to resubmit it, costing you more in gas fees.
The exact price of the gas is determined by the network’s miners, who can decline to process a transaction if the gas price does not meet their threshold.
Theoretically, the setting of the Gas price depends on the sender, but the miners verify it. If the price is not enough for them, they ignore it. The average price is around 20 Gwei, but when there is a lot of traffic in the network it can increase significantly.
When you want to buy some Ethereum Gas you need to have some amount of Ether first. If you want to buy Ether you can do it on an exchange like CoinCasso. Buying ETH on a cryptocurrency exchange is a most popular way to get it. 1Ether token is a 1 000000000 Gwei. When you have Gwei you can buy Gas for it, setting the appropriate limit and the price of gas you want to pay.
The Ethereum Virtual Machine (EVM) is capable of running smart contracts that can represent financial agreements. It can also be used to execute bets and wagers, to fulfill employment contracts, to act as a trusted escrow for the purchase of high-value items, and to maintain a legitimate decentralized gambling facility. So it has to be fully secure and flawless to handle such complex and important transactions. If it will be well developed, it can be used to replace all kinds of legal, financial, and social contracts.
At present, all EVM contracts are still very expensive (in terms of Ether consumption) and limited in terms of calculation power. They are only in the early stages of development and have a long way to go. However, we know that the world is moving forward, science is progressing and soon there will be computers with much more processing power.
It is certainly plausible that in a few short years, the EVM or its successors will be able to handle sophisticated smart contracts in real-time.
Gas Ethereum is criticized for being too expensive for developers and smart contracts. It has to be a balance between on-chain and off-chain complexity while taking advantage of the decentralized capabilities of the blockchain.
For Ethereum to work as a world computer, fees on the network need to be minuscule, so many people will want to use this solution. As such, the way to pay for these transactions, Ether, also needs to be denominated in minuscule amounts. Sometimes, unfortunately, the fees increase significantly, resulting in an increase in the price of a smart contract.
There’s a big problem with this Gas fees. The miners purposefully scrape off the overpayment for the block, lifting the prices. When they choose the blocks with the highest bids, subsequent transactions have even higher limits. It is not possible to check what offers have appeared in other pending transactions. Very often there are big equals in transaction fees in the same block, sometimes users pay even 5 times more than necessary. Currently used auction mechanism does not take into account the demand for the network. It is possible that these problems will be solved with the advent of Ethereum 2.0, but we will have to wait for this solution.
The smart contract system is very well thought out and is probably the solution that many companies will bet on in the future as there are no big opportunities. Modern technology does not yet allow us to solve all the problems that the use of a smart contract in the whole network is not yet possible, however, in the course of time, improvements will certainly be made. At first look, the use of Gas may seem complicated to new users, but, as you can see in this article, it is quite simple and will be made up of understandable mechanisms. It’s certainly a good idea to buy Ethereum, as it’s a cryptocurrency that’s constantly evolving and has amazing possibilities. You can buy it for example on a CoinCasso and then use it for a smart contract.
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