What is Gas in Ethereum and how to reduce fees: a simple explanation

Ethereum is one of the most popular blockchain networks that provides the functionality of smart contracts and decentralized applications (dApps).

Its uniqueness lies in its ability not only to conduct transactions but also to perform programmable operations. However, performing any action on this network is never free. Such operations require Gas, a special unit of work that plays a key role in the functioning of Ethereum.

Content:

• What is Gas and how does it work in Ethereum
• How fees are calculated: basic formula and Gwei
• What are the fees in Ethereum: Base Fee, Priority Fee, and Gas Limit
• Why does Ethereum need Gas at all
• Table: comparing Ethereum and Layer 2 networks in terms of fees and speed
• Examples of using Gas: from sending ETH to creating NFTs
• Why the fees in Ethereum are so high
• How to reduce the cost of Gas: strategies and tips
• Why it is important to understand how Gas works
• Conclusion: the role of Gas in the Ethereum ecosystem

What is Gas and how does it work in Ethereum

Gas in Ethereum is a mechanism that provides payment for the computational resources required to execute transactions or smart contracts on the blockchain. Simply put, Gas is the internal “fuel” of the Ethereum network. Without Gas, transactions would be impossible to execute, as it compensates miners for the computing power expended.

Source: WallStreatMojo

To understand the concept of Gas, it is important to realize that the Ethereum blockchain is a huge distributed computing engine. Each transaction or execution of a smart contract requires computational resources, energy, and time. Gas is used to determine how many resources will be required to execute a particular transaction.

How fees are calculated: basic formula and Gwei

It is worth noting here that in Ethereum Gas is not a real currency. It is measured in small units called Gwei. One Gwei is equal to one billionth of an ETH (0,000000001 ETH). By interacting with the network, the user selects a certain amount of Gas and its price (cost per unit). These values determine how much ETH will be spent on fees.

What are the fees in Ethereum: Base Fee, Priority Fee, and Gas Limit

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Why does Ethereum need Gas at all

The importance of Gas in Ethereum is due to several key factors:

• Saving computational resources. Gas introduces a mechanism to limit transactions. If a user does not have enough funds to pay for Gas, the transaction will simply not be executed. This prevents excessive utilization of computing resources on the network and ensures that the system remains resilient even under high load.
• Incentivizing miners. Miners are network participants who confirm transactions and produce blocks by expending computing resources. Gas pays them for their work, incentivizing them to maintain the stability and security of Ethereum.
• Defense against attacks on the network. Without the Gas mechanism, attackers could initiate a huge number of transactions, overloading the network. This approach, called a “spam attack,” could significantly slow down Ethereum. Gas restricts such actions because they become economically unprofitable.

Table: comparing Ethereum and Layer 2 networks in terms of fees and speed

What does the Gas Fee consist of?

The transaction fee in Ethereum is determined by two main parameters: the amount of Gas required to complete the transaction and the Gas Price. These two parameters form the final Gas Fee, i.e., the amount of money the user has to pay. The Gas Fee is calculated using the formula:

• Gas Limit × Gas Price = Gas Fee
• Gas Limit — the maximum amount of Gas the user is willing to spend on a transaction.
• Gas Price — the cost of one unit of Gas in Gwei (1 Gwei = 0,000000001 ETH).
• Base Fee and Priority Fee (tip) also affect the final price, especially after Ethereum’s transition to EIP-1559. This network improvement proposal, implemented along with the London upgrade in 2021, has changed the way fees are formed.

Examples of using Gas: from sending ETH to creating NFTs

Gas is important for performing almost any action on Ethereum, from sending ETH to running smart contracts. Here are some examples of its use:

• Conducting a transaction. If a user wants to send ETH to another address, they must pay Gas to process that transaction. Even the simplest operation requires an expenditure of resources.
• Smart contract operation. For example, if a user interacts with a decentralized application (dApp) such as an NFT marketplace or DeFi protocol, performing smart contract functions requires a significant amount of Gas. The more complex the functions, the higher the fee.
• NFT creation. Issuing custom tokens on the Ethereum network via the ERC-20 or ERC-721 standards involves executing the code prescribed in the smart contract. This also requires payment of Gas.

Every time a user wants to interact with the network, they are faced with the need to pay for Gas, even for minimal operations.

Why the fees in Ethereum are so high

High Gas Fee is one of the most discussed issues in the Ethereum ecosystem. There are several reasons for such high fees:

• High network load. Ethereum remains one of the most popular blockchain platforms, resulting in increased demand for computing resources. During periods of popularity for certain applications (e.g., NFT platforms), network load becomes incredibly high, increasing the cost of Gas.
• Limited block capacity. Each Ethereum block has a limited number of computational operations that can be placed in it. When demand exceeds the available supply, users start bidding a higher Gas Price so that their transactions can be processed faster.
• Using complex smart contracts. The high level of transaction complexity in DeFi or NFT applications leads to an increase in the amount of Gas required to execute them, which in turn directly affects the cost of fees.

These factors cause Gas Price volatility and often make working with Ethereum expensive.

How to reduce the cost of Gas: strategies and tips

It is possible to reduce Gas costs by following some strategies:

• Setting a low Gas Price. The user can manually select a Gas price when making transactions. If the network is not congested, selecting a lower price may result in savings. However, such a transaction may be processed later than a similar transaction with a high cost.
• Using less congested hours. The activity on the Ethereum network depends on the time of day and day of the week. Conducting transactions during periods of less activity reduces Gas Price.
• Optimize interaction with smart contracts. If a user works with applications on Ethereum, it is important to understand which functions require more Gas and minimize their usage.
• Utilize Layer 2 networks (Layer 2). These are complementary infrastructures on top of the underlying Ethereum blockchain (e.g., Optimism and Arbitrum). They reduce the load on the mainnet and meaningfully reduce the cost of Gas.

Why it is important to understand how Gas works

Understanding how Gas works is important for both ordinary Ethereum users and application developers. For users, it helps them plan efficiently, minimize costs, and avoid unnecessarily high fees. For developers, understanding Gas helps them create optimized smart contracts and applications that require fewer network resources.

In addition, knowing how Gas works allows for a more informed approach to choosing a platform for cryptocurrency transactions. Since there are many alternatives to Ethereum on the market, such as Binance Smart Chain and Solana, users familiar with the details of the technical aspects will be able to make a choice based on specific needs.

Conclusion: the role of Gas in the Ethereum ecosystem

Gas is a key element of the Ethereum ecosystem that guarantees network stability, incentivizes validators and limits excessive resource utilization.

Its importance cannot be overestimated, as without it, transactions would be impossible. Understanding how Gas works helps users interact with the network in an informed and efficient manner, minimizing the cost of fees.

However, the challenges of high Gas costs remain, especially during periods of increased load. Utilizing cost reduction strategies, such as choosing less busy periods, using L2 networks, or setting a low Gas Price, can avoid excessive costs.

Ethereum continues to evolve, and with the introduction of scalable solutions such as Ethereum 2.0, network load and Gas Price may decrease in the future. Users need to stay up to date with updates and understand the fundamentals of the blockchain to effectively utilize Ethereum’s capabilities.