Ethereum Gas

Ethereum gas refers to the fuel required to operate and govern the Ethereum network. It is also used to process the transactions on the blockchain. The prime objective of this gas is to power the network and conduct seamless and quick transactions on the Ethereum chain.

The origin of this gas dates back to 2014 when the Ethereum blockchain was released. It has dual purposes as it serves as payment and incentive to different participants. In short, the payment of gas by users acts like fuel to the blockchain. However, this gas does not occur on other blockchain networks.

Ethereum gas is the only fuel that empowers the entire network of the Ethereum blockchain. The users utilizing the Ethereum network must pay this gas in the form of Ether (ETH). So, when a person makes a trade, they deposit gas on the platform. This fee acts as a payment to the protocol. It compensates for the computational power utilized. In short, without gas, the entire blockchain is baseless. Hence, gas acts as an essential component of the Ethereum architecture. It helps to protect the platform from malicious actors and bugs. 

This gas is available for both validators and users. However, the former can only be received when the user pays it. This means that when a transaction is made, the user sets a gas above the threshold and submits it to the protocol. Once approved, the validator considers the transaction in the block. However, if the gas is below the limit, the protocol may itself reject and fail the transaction. As the transaction succeeds, the network earns gas. The higher the complexity, the more gas is charged to the user. But, if the gas fee paid remains unused, the network initiates the refund. The limit for this gas differs depending on the usage and operation of the network.  

Although the gas turns expensive at times, there are various ways to reduce it. For example, users can deploy an Ethereum gas station to minimize the transaction fee. So, when a user wants to transact, they sign and send the request to the relay servers. In return, the paymaster verifies it and agrees to pay on behalf of the user. Thus, the trader has to pay no gas for the transaction made. However, the Ethereum gas station does ask for a network fee as an incentive. 

The Ethereum gas acts like a network fee for the miners for their work performed. Users generally pay this fee in the denomination of gwei, which is a small amount of Ether. However, after the recent upgrade, it works on an auction-based mechanism. When users execute a trade, the miners look out for transactions with higher gas and start validating them. It involves a descending order from highest gas to lowest. However, the gas may fluctuate during the period. 

This price depends majorly on the supply and demand forces. It also considers the network's traffic within a particular period. Thus, if the network is busy and the supply of validators is less, the gas increases. Likewise, a low trading activity can lower the Ethereum gas fee. For instance, a higher gas price indicates high trading activity and vice versa. 

According to the historical Ethereum gas charts, the gas price during the initial phases (in August 2015) was 58.42 gwei. However, in the later phases (in January 2020), during the Covid-19 crisis, the price fell to 8.97 gwei. It was the lowest price ever noticed until 2020. Yet, the crypto market stabilized, and the price reached its highest point. In August 2020, the gas price of Ethereum was 236.12 gwei. This was due to the sudden rise in network activities on the platform. But, after two months (in October 2020), the gas price fell to 40.82 gwei. As per the recent Ethereum gas charts, the current gas price on October 11, 2023, is 7.78 gwei. 

The standard gas limit on the Ethereum platform is 21,000 gwei. Here, one gwei is 0.000000001 ETH. It means that the crypto user must deposit at least 0.000021 ETH to conduct the transaction or get it verified. If a user provides more gas, the verification will happen quickly. However, the limit varies for various transactions.

According to the Ethereum yellow whitepaper, the cost of warm account access or storage is 100 gwei. In contrast, the cost of cold storage and access is 2100 to 2600 gwei. However, if a person chooses to self-destruct the operation, they must pay 5000 gwei. For initiating an Ethereum operation, the value is higher than the standard gas limit (32,000 gwei). Likewise, if a miner wants to hash the transaction, the gas fee is 20 gwei. The validator must pay 30 gwei to hash each data to the KECCAK256 operation. However, rounding up each data to  KECCAK256 requires only six gwei. 

Let us look at some examples of Ethereum gas to comprehend the concept in a better way:

Example #1

Suppose Blessy is a crypto user trading in the market for her business purposes. Initially, she used to deal with Bitcoins, but lately, she switched to Ethereum for higher transaction speed. Blessy bought 200 tokens from the exchange for payment. She logged in to her crypto exchange account and transferred these coins to her Coinbase wallet. Later, she selected Ethereum and executed the transfer. However, the platform asked for a transaction fee of 21,000 gwei for the transfer of 100 ETH. Also, it included a base fee of 20 gwei and a tip of 30 gwei, which totals 12,600,000 gwei. 

As a result, Blessy had to pay 1.26 ETH on the transfer of tokens. In this case, the platform requested 21,000 gwei, but Blessy wanted to execute it faster. Therefore, she added a tip of 30 gwei to boost its speed. However, she received an Ethereum gas refund of 10 gwei as it was unused. 

Example #2

According to recent updates as of October 2023, Ethereum's energy consumption has decreased by almost 99.99% following The Merge update. This transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) significantly reduced the network's environmental impact. However, the significant reduction in gas fees and transaction costs on the Ethereum network can be attributed to several factors, including the development of Layer-2 scaling solutions, changes in network activity, and varying demand for NFTs (non-fungible tokens) and other applications.

Following are the benefits and limitations of the Ethereum gas that prevail on the network: