What are Gas Fees on the Ethereum Blockchain?

If you've been dealing with the Ethereum blockchain, you've probably come across the phrase Gwei.

Gas Fees:

Gas refers to the fee required to conduct a transaction on Ethereum successfully. Gas fees are similar to processing fees that credit cards may incur to transfer money to various accounts or pay bills.

Why do Gas Fees exist?:

Gas fees help keep the Ethereum network secure. By requiring a fee for every computation executed on the network, it prevents bad actors from spamming the network.

So How do Gas fees work?:

More than 3000 decentralised applications are running on the Ethereum blockchain, all of which are looking to have their transaction included alongside other Ethereum network users.

But there are only so many miners at a time that can validate these transactions. This puts the miners in a situation where they must choose a certain number of transaction to validate.

The Mempool:

All the unprocessed transactions are stored in something known as "mempool", a combination of memory and pool. Here, miners can decide which transaction they want to validate.

Users add additional gas (priority fee) to the "mempool" to prioritise their transactions on top of the base gas fee and outbid other competing transactions.

Why do Gas Fees get so high?:

Gas can get expensive when the Ethereum network is experiencing a high volume of transactions. For each new block added to the Ethereum blockchain, there is limited space for how many transactions can be included.

Due to supply and demand, miners are incentivized to accept transactions at higher gas fees.

Gwei is a term that is widely used by the Ethereum community and it is something even seasoned Ethereum users have a hard time explaining.

Etherscan

What is GWEI?

Gwei is a combination of the words “Giga” and “Wei”. It is basically a denomination of the cryptocurrency Ether, and is commonly used to measure the cost of gas for transacting on the Ethereum network.

A Gwei is equivalent to 0.000000001 ETH or is 1 billionth of an Ether.

Gwei also goes by other names like Shannon or Nanoether. It is named Shannon after the late Claude Elwood Shannon, an American cryptographer, who is also known as “the father of information theory”.

How to calculate transaction fees in Gwei?

The Ethereum Gas Station can provide you with the current base Gwei for transactions. In the event that you need to double-check, the Etherscan gas tracker is also a viable option.

The minimal quantity of Gwei necessary to include a transaction on the Ethereum blockchain is known as base Gwei. The demand for a transaction to be included determines Base Gwei, which will rise or decrease depending on the amount of users engaging with the blockchain.

You can use this formula to calculate the total Gwei required: Gas Units (Limit) x (Base Gwei + Tip)

To illustrate this example, let’s say the estimated gas limit is 65,000 and I want to do an ERC-20 token transfer to another wallet.

Total Gwei = 65,000 Gwei x ( 118 Gwei + 0 ) = 7,670,000 Gwei

I would have to pay a total of 7,670,000 Gwei to send the ERC-20 token to another wallet.

Converting Gwei into USD

How do you convert Gwei into USD?

To convert Gwei into USD you need to know:

Total Gwei

The current Ethereum price

The formula to convert Gwei to USD is: Gwei x Ethereum price x 0.000000001. Let’s assume that 1 ETH is USD$3,000.

7,670,000 Gwei x USD$3,000 x 0.000000001 = USD$23.01

The Gwei to USD Calculator is an easier approach to get a basic idea of the current gas price. (The gas limit was set at 200,000 by the calculator.)

Keep in mind that more complicated transactions will result in higher gas costs. A simple transfer of an ERC20 token from one wallet to another would cost far less gas than a token swap on a decentralised exchange.

Why does gas cost so much?

There are two key causes behind the high cost of gas:

1. Ether's price is rising.

2. The network is seeing a lot of traffic.

Because gas rates are priced in Gwei, rising Ether prices will inevitably raise the amount consumers must pay for gas.

Another explanation is that the Ethereum network's traffic has increased. The base Gwei would rise to satisfy the increased demand for the blockchain with over 3,000 decentralised apps running on the network.

Picking the proper time to complete a transaction is one way to save money on petrol. Because the gas price is determined by the blockchain's supply and demand, you may trade when there are less users on the network.

1 minute video about Ethereum Gas:

credit: chaindebrief