The Gas Price is the amount a user is willing to pay for a transaction to be completed on the Ethereum blockchain.
The gas price fluctuates depending on how busy the Ethereum Virtual Machine is. The busier the network, the more you’ll need to pay. Scroll down to know more about the gas price and how to calculate it.
What Is Gas Price?
The gas price is the total amount required for a transaction or contracts to be properly completed on the Ethereum blockchain. It allocates resources to the Ethereum virtual machine (EVM) for decentralized applications, such as smart contracts, to execute themselves in a safe but decentralized manner.
It refers to the amount of ETH (in a small unit called gwei) that must be paid to miners for processing transactions on the network. One gwei is equivalent to 0.000000001 or 10-9 ETH.
To determine the precise price of gas, network miners compare supply and demand among themselves and others who use the network. They may refuse to complete a transaction if the gas price falls below their minimum threshold.
How Gas Price Works
The price of gas is determined by an auction-style mechanism in which miners look for the highest fees attached to a transaction and then process these transactions in descending order.
Gas prices fluctuate significantly over time, rising during periods of high activity and falling during periods when the network is underutilized.
The majority of Ethereum wallets provide general references for prices of gas as well as processing time comparisons with various gweis.
Most other blockchains and cryptocurrencies employ similar mechanisms for managing and prioritizing which transactions on the network are processed first. By enacting a fair market mechanism and incentivizing more entities to provide computational power to the network, this mechanism ensures healthy competition and security for the blockchain.
The addition of computational power (measured in the hash/second or h/sec and its metric denominations) to the blockchain improves its security and stability because potential attackers would need to exceed this power to breach the blockchain’s security.
Exorbitant gas prices have long been a source of contention among Ethereum users, limiting the network’s ability to scale.
As more popular DeFi projects, DApps, and decentralized exchanges (DEX) like Uniswap and SushiSwap operate on Ethereum, the network becomes more “congested,” and gas prices rise.
Uniswap users paid up to $50 in gas fees per transaction at the height of the 2020 DeFi boom!
How To Calculate Gas Price
The price of gas is determined by miners performing transaction processing in a manner akin to an auction, in which they seek the highest fees and process transactions in descending order.
Gas prices fluctuate meaning they may rise during periods of high demand or fall during periods of low usage. To compare processing times, look up gas prices and see if they are comparable to the gas used by other wallets in the past.
The method of managing and ranking transactions on the network is the same in most other cryptocurrencies and blockchains. This approach ensures a fair market mechanism as well as encourages more entities to donate computing power to the network.
While the amount of gas needed for any given transaction remains constant, the price of gas fluctuates.
When sending a transaction, users set the gas price (which is often done automatically by wallet software), and the transaction is then sent to the “mempool” for Ethereum miners to include in the next block.
Miners are rewarded with transaction fees within a block, which motivates them to prioritize transactions with higher prices of gas.