All You Need to Know About Blockchain Gas Fee

Hey Blockchain Folks! I'm back with another interesting concept of Blockchain that needs a quick overview today. Gas or Gas Fee is a commonly used term in the Blockchain world and hence we need to understand what it means and its significance in the given technology. But before that, let's follow our usual ritual of me reminding you about the previous article and which was about Distributed Ledger Technology & Blockchain: Similarities and Differences. Give it a read here. Time to get back to our today's topic of "What is a Gas Fee in Blockchain".?

What is a Gas Fee in Blockchain??

The term gas or gas fee is used to measure the computational resources that a certain task on the blockchain network requires. Let's understand it in a much simpler manner. Any activity on a given blockchain network, from smart contracts execution to NFTs purchase requires computational power to complete the same.

A group of network validators that authenticates blockchain transactions maintain their equipment and here gas fees play a vital role in transferring this value to the one in need from the one delivering the computational power. Validators are incentivized to uphold and maintain the security of the blockchain ledger. In the context of the Ethereum network, the term also refers to the pricing mechanism and computes the cost or fee of processing a transaction.?

How to Calculate and Pay Gas Fees??

Blockchain gas fee is calculated based on the basic economic concept of supply and demand, similar to real-life fuel prices. For example, gasoline prices are based on the demand & supply of the same. In the case of Blockchain, demand is the total computing power needed to execute user's transactions, and supply refers to the total computing power of the network validators. The gas fee is updated in real time depending on the current demand of the network. It is also significant to mention here that the user willing to pay more can get transactions processed sooner.??

Old Gas Fee Calculation Formula

Before Ethereum's London Upgrade in August 2021, the gas fee was calculated based on the given two factors:?

1. Gas Price: The price user is willing to pay for each unit of gas.

2. Gas Limit: It defines the maximum amount of gas that can be used to execute a specific transaction.

Gas Price x Gas Limit = 
Maximum Gas Fee a user might pay to execute a given transaction        

New Gas Fee Calculation Formula

To make the gas fees more predictable, EIP-1559 was introduced and hence the gas fee now is calculated based on the given new formula.?

Gas limit x (Base Fee + Priority Fee (Tip))        

Now Ethereum network implements a base fee that adjusts itself automatically based on the user's demand so that users are not required to determine the gas fee. After the payment of the gas fee, the base ETH fee is permanently removed from the circulation do the network. You must be wondering, what happens if the user sets the gas limit too high? Well, in that case, the difference in the amount is refunded by the network after the processing of the transaction.?

Understand GWEI

The gas fee of Ethereum is paid in small denominations of GWEI (short for giga-Wei). Wei is known to be the smallest unit of the Ethereum network and GWEI equals 1 billion Wei. It is also important to note that the current dollar value of gwei today may not be the same tomorrow or later. Therefore, you need to measure the value of gwei based on the current Ethereum price at any time.?Also, the timing of your transactions can have an impact on the transaction fees.

Do You Need GWEI?

Well, if you are doing a transaction on the Ethereum network or ERC-20 token, you are required to pay a gas fee which is gwei. If you own a full Ether coin, you are a gwei billionaire as 1 ETH = 1,000,000,000 Gwei.?

Ethereum Gas Tracker?

There are plenty of online tools that help you check Ethereum gas prices such as Etherscan's Ethereum Gas Tracker. Here you can check at any time how much you are needed to pay to process a transaction on Ethereum. Typically, a minimum gas limit of 21k gwei is required for computation on the network.??