What is gas fee and why is it important?

Updated on 17 September, 2022 1:26 PM
1 min read

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    You must be wondering what exactly ‘gas’ means in the digital currency world especially crypto such as Ethereum. So before going into the wider concepts of gas fees and how and where is it implemented, we need to understand what are we referring to as ‘gas’.

    What is 'Gas' in the crypto context?

    On the Ethereum network, the term "Gas" refers to the amount of processing power needed to complete a transaction. We can think from the perspective of putting fuel such as petrol or diesel in your vehicle that allows it to run and function properly. Put simply, this digital gas can be considered the fuel which allows the Ethereum blockchain engine to run smoothly and operate properly.

    Gas can also be considered as the unit that expresses the amount of energy and power needed to carry out activities in the Ethereum network.

    Why do we have to pay Gas fee for every transaction on the blockchain?

    Firstly we need to know that gas fees are unique only to the Ethereum network and gas is ultimately the total amount of Ethereum’s native cryptocurrency – ether (ETH). As per the real-world example provided earlier, every fuel has a price to pay and is compensated in the form of a fee. The fees that users of the digital market have to pay in order to carry out any transaction in the Ethereum network are what we call ‘gas fees’.

    As the number of transactions requested by users sees a surge automatically the gas fees are also implanted heavily on them. This has been quite a frustration to users lately who see this as a barrier to their intentions of heavy transactions on the Ethereum market. As the gas fees keep going higher and higher, it makes the transaction process more tedious and longer. Also, it is seen that more complicated transactions have higher gas fees implanted in them and this excess amount adds discomfort to the buyers.

    How is Gas fee calculated?

    You may use a formula to figure out the gas costs associated with each transaction, but there are a few crucial concepts to grasp first.

    The units of measuring gas fee are known as ‘Gwei’ and each unit of the gas fee is represented by 1 Gwei.

    ‘Base fees’ are the minimal quantity of gas necessary to complete a transaction on the Ethereum network and are determined by demand and supply in the network.

    This brings us to the ‘Gas limit’ which is the most you're willing to shell out for gas on a particular transaction. Here we need to be careful to ensure that our gas limit meets the transaction amount we desire.

    The final aspect to grasp is the ‘tip’ or the priority fee, which is an additional charge paid by buyers to ensure that their transaction requests are processed more quickly.

    Now let us formulate the gas fee that is payable by the users


    We can then convert this gas fee calculated in gwei to the price of an Ethereum coin (ETH) , which in turn is later expressed in USD for the simplicity of the buyers who are not that familiar with the crypto market.

    How does gas fee make the blockchain slightly more secure?

    Even though they impose huge monetary amounts on the users, gas fess serves an important purpose in the market. They heavily increase user security on the Ethereum blockchain. Because each transaction has to be paid for, Ethereum is less appealing to hackers who could try to flood the network with requests. This makes the system more secure and transactions can be carried out more smoothly.

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