By
Dimitar Bogdanov
April 27, 2021
2 Min Read
Ethereum gas and gas prices are among the topics that inevitably come up when we talk about the world’s second-largest blockchain network and there is a good reason for that. Ethereum gas is an essential element of the network and is, in a sense, what makes the Ethereum (virtual) machine tick. In this article, we’ll be taking a closer look at what gas is and why it has become a topic of contention within the Ethereum community.
At its core, there is really nothing special about Ethereum gas. The term refers to the fees paid in order for transactions to be processed on the Ethereum network. It is priced in a special unit called gwei, which is a tiny denomination of Ethereum’s native token, Ether (one gwei is equal to 0.000000001 ETH). So essentially, transaction fees on Ethereum are paid in Ether, just like Bitcoin transaction fees are priced in BTC. So why is this extra level of complexity? Why come up with a separate term like gas, if it’s essentially Ether? Well, to answer these questions, we need to first understand
While Ethereum was inspired by Bitcoin and was built on the principles pioneered by the OG blockchain protocol, it was meant to serve an entirely different purpose. Ethereum was designed to be a general-purpose blockchain, a decentralized computer capable of running all kinds of applications. This means that, compared to Bitcoin transactions that only facilitate simple transfers of value, Ethereum transactions are used for much more, for example, for deploying or triggering smart contracts that govern decentralized apps. Having a separate unit for transaction fees is a really handy way of measuring the computational cost of using the Ethereum Virtual Machine. The EVM is what enables smart contracts to be run on Ethereum.
Essentially, gas fees are one of the mechanisms rewarding network participants for doing computational work on the Ethereum network. Users who want to transfer ETH or run contracts on Ethereum include such fees to incentivize miners to process and validate their transactions faster. Users can also set a ‘gas limit’, which indicates how much they are willing to spend on a transaction. Any gas that remains unused in a transaction is returned to the user.
The gas limit also serves as a safeguard against bad actors spamming the network, as it prevents accidental or hostile infinite loops or other waste of computational resources due to unoptimized code.
The rising gas price is one of the main causes of concern within the Ethereum community today. Since miners are inherently incentivized to process transactions that include higher fees, users need to pay more gas if they want to avoid lengthy waiting periods. The recent increase in activity on Ethereum, combined with the network’s limited scalability has only exacerbated the problem. According to Etherscan, the average Ethereum gas price currently stands at around 54 gwei, which is nearly five times higher than what it was a year ago. Not to mention that the price of Ether currently sits at around an all-time high of more than $2,300, which makes transactions on Ethereum even costlier.
The high gas price is one of the reasons driving users and blockchain projects to seek Ethereum alternatives (link to the Ethereum alternatives piece). Earlier this year, Enjin, a blockchain platform for non-fungible tokens, announced that it was moving from Ethereum to a Polkadot parachain, citing the high gas fees as the primary reason for the decision.
Meanwhile, the Ethereum developers community is coming up with different ways to solve these issues. Considerable efforts are focused on so-called Layer 2 solutions like ZK rollups and Plasma, which aim to lower the load on the main Ethereum chain, thus helping improve processing capacity and lowering fees. You can read more about the most promising Layer 2 scaling solutions here.
But the main hope lies with the Ethereum 2.0 project, which is set to, among other things, replace Ethereum’s energy-intensive proof-of-work algorithm with a proof-of-stake consensus. The transition is expected to significantly reduce the amount of computational work needed to process and validate transactions on Ethereum.
It remains to be seen what impact these ambitious projects will have on the Ethereum ecosystem, but one thing is certain. Ethereum gas will continue to be an essential part of the network and will play a big role in determining Ethereum’s utility and usability.
