Ethereum is one of the most popular blockchain networks used to develop decentralized applications and smart contracts. Ethereum is the second largest cryptocurrency with the second largest market capitalization after BTC- Bitcoin. However, despite being the second highest, Ethereum is more expensive in transaction fees compared to Bitcoin. It has a reputation for being a slow and expensive blockchain network.
Ethereum gas or gas in general refers to a fee or a price that is charged by Ethereum to successfully conduct a transaction and smart contract. For instance, when we use bank services for transactions or ATMs, banks charge a certain amount for ATM transactions. Similarly, to use the Ethereum network for transactions, a fee is charged and that fee is known as Gas.
The main concept of gas by Ethereum was introduced to make a clear distinction between computational expenses and the actual Cryptocurrency value of ETH. The gas draws a line or layer that allows a separate distinction between the valuation of ETH- Ethereum Cryptocurrency and the EVM – Ethereum Virtual Machine
What is EVM – Ethereum Virtual machine?
EVM has the capacity or ability to run smart contracts on the Ethereum network. Smart contracts represent financial agreements such as coupon-paying bonds, employment agreements, swaps, options contracts, and more. These EVMs and transactions of Ethereum use gas for the successful completion of the process.
Gas on the Ethereum network refers to Ethereum network transaction fees. It acts as compensation by users for computing energy to validate transactions on blockchain networks. Moreover, it also helps the users to make the network stronger and prevent unwanted users from scamming with transactions on the network.
The price and Ethereum gas fee can vary because of the dynamic formula to calculate the fee. The price or gas fee is denoted as Gwei. The exact price will depend on the supply and demand of the miners. Each Gwei = 0.000000001 ETH.
How do Ethereum gas fees work?
Last year in August 2021, the Ethereum transaction fee mechanism was upgraded as part of merge 2.0. During the network upgrade known as the London upgrade, the Ethereum transactions fee total was formulated to calculate as:
Total fee = gas units( limits) × base fee + tip
Gas units: Gas units here are referred to as the maximum number of gas or amount of gas a user is willing to pay for the transaction to complete. Different transactions on the network use different transaction fees to successfully complete the transaction.
Base fee: The base fee is referred to as the minimum amount of gas needed to add a transaction to the block. The network will calculate the base fee based on the block space and the amount of demand for the gas or transaction. If there are a large number of users on the network, the base fee will certainly be higher.
After the London upgrade, the block size in the Ethereum network has been varied from 15 Million to 30 Million gas. Here gas is the amount of gas used for all the transactions in the block. The base fee of the gas is increased by 12.5% every time the number of transactions exceeds 15 Million gas. Gas is a computational power needed to complete transactions and ether- ETH is the currency to purchase the gas.
What is Ethereum based fee in merge 2.0
Ethereum getting upgraded from the PoW model which is the Proof-of-work model to the POS – Proof-of-Stake model. The Ethereum blockchain network has already started the test version of this model, and an upgrade based has been done to some extent. The merge or upgrade from POW to POS has been done so that the energy consumption of Ethereum can be reduced.
Why does BTC- Bitcoin not require Gas?
BTC – Bitcoin or any first-generation crypto coins have similar problems in transactions. These crypto coins allow for monetary transactions only, you cannot work on smart contracts or Dapps with the bitcoin network. Moreover, in these transactions, users are not allowed to add conditions. For instance, If a person “A” sends 10 Bitcoins to “B” they cannot put conditions like you will receive coins only when you perform certain tasks. These conditions are only used with smart contracts and Ethereum allows smart contracts.
Why is a gas system required in Ethereum or anywhere?
Similar to the Peer-to-Peer or Proof-of-work system, Ethereum is dependent on the hash rate of miners which means more miners use the network, more bash rate, and ultimately a more secure and faster system. Therefore, to attract more miners to the platform, Ethereum tries to make it more and more profitable for the miners.
Miners can earn money in Ethereum in two ways – becoming temporary dictators of mined blocks, making blocks, and getting rewards. These miners are responsible to put transactions in a block, to do so they need computational power that will use gas fees to validate transactions. All of this helps minors to earn and makes the platform more secure and fast for the users.
Final Thoughts: The gas fee is beneficial for minors and the network. Moreover, the facility of smart contracts, Dapps, is even more useful. But the high cost of gas and slow network is the issue that Ethereum needs to solve.