Have you ever tried to process a transaction on the ETH blockchain and wondered why Ethereum gas price is so high? Are you a crypto newbie and someone mention that the gas (price) for ETH is high and didn’t understand the meaning?
We’ll help you explore the nitty-gritty of ETH gas and what it way it impacts crypto trading.
What is Ethereum Gas?
The gas price for Ethereum is the fee charged when processing a transaction or executing a contract on the Ethereum platform. It is the cost at which the transaction fees are priced.
The gas price valued in units of the Ether is charged by miners, who carry out the computational transactions of verifying and processing it.
You could liken them to the bank charges you pay on a bank transaction. Only that this time, it involves Ethereum, a viable cryptocurrency, the second-highest after Bitcoin.
ETH is exchanged in the cryptocurrency ‘ether’, and the gas price for ETH is charged in units of the ‘Ether’ known as the ‘GWEI’ or ‘nanoeth’.
When the gas is paid, they can go ahead to allocate resource to the decentralized applications on the Ethereum Virtual Machine, which allows them to execute securely.
The gas prices and corresponding gwei payment are determined by miners on the network. Although they work with a gas limit, depending on the extent of resources needed to process a transaction . However, they may choose to decline transactions when the gas price is too low.
Why is the price of Ethereum Gas high?
The units of gwei that are charged on transactions on the Ethereum blockchain has reached an all-time high. Today, more people demanding for ETH has increased on decentralized finance platforms, hence the demand for the service of miners.
Although only a few million blocks of ETH are in circulation, Ether, the unit of Ethereum, are made available in millions to buyers. The gas is distinct in value from the transaction, as it is paid for separately in units of ETH.
Since gas Gwei is the payment for computation energy expended on transactions, then what makes it so high, even amounting to over $500,000?
How does a transaction work?
Every transaction processed on the ETH blockchain must be added to the blockchain as part of the existing framework. Miners can act as developers while adding new blocks to improve security.
Like a car needs gas to run, ETH gas, though not a fuel, is needed to execute transactions. They also have the liberty to accept and decline transactions on the Ethereum platform depending on the existing threshold. It puts the transaction process on the basis of an auction. Whoever sends a transaction use gas limit that they can pay for the transaction. Then, they get to select what transaction fee seems profitable to them.
Since the whole process is based on an incentive structure, miners often choose bids with higher gas prices. This procedure allows other users to increase their gas price limit, pushing the gas Gwei prices further higher.
However, it has a downside. When miners choose their desired transaction, the actual gwei price of the transaction may not be as high, and would have to refund, so they won’t exceed their own block gas limit. Unfortunately, this is unknown to other bidders as well. The person bidding might end up paying as low as someone else offered, but would have been rejected.
Also, there may be pending transactions, that a bidder may be bidding for, hence a higher gas price. Unknown to other bidders on the network, they may also shoot up their gas limits to be selected, or with the hope of some ETH refund.
What transactions hike the Ethereum Gas Price (Gwei)?
Different transactions or smart contracts can be established on the Ethereum Virtual Machine, using the ERC20 token protocol. These transactions require different computational resources to establish them. Hence, they are valued at different gas prices Gwei determined by the miners.
The machine could be used to execute smart contracts such as bets, wagers, swaps, or other financial agreements. It could also serve as an escrow where high-value items are purchased. For others, it serves as a legitimate gambling facility that cannot be influenced by external manipulations. When smart contracts are fulfilled, payments are settled in currencies of ETH, and a lot more money made.
How does a Ethereum Ecosystem Work?
The Ethereum ecosystem is a decentralized and secure network, hence no single ETH can be mined unduly. It’s secure processing makes ETH a highly sought cryptocurrency. This makes it significantly different from the Bitcoin platform, where conditions cannot be made on task execution or completion like it’s done on the Ethereum blockchain platform. There is no room for compulsion on financial exchanges on the Bitcoin network, so no gas price is required and no smart contract facilitated.
The successful execution of smart contracts and gas fees payments eliminates the need for third parties and middlemen in transactions. It takes out the need for legal representation, while it is executed smartly. All of these transactions are the reasons why miners are in high demand and the gas price gwei keeps hiking.
When smart contract and transactions are completed, you may choose to exchange an ETH or some Gwei for fiat currencies like the Dollar. Otherwise, you could trade it on other crypto exchanges.
Like your car, the miners who act as developers on the Ethereum platform, require gas fees in gwei to execute a transaction from problem to solution. However, this ETH gas in technical terms is the amount of energy required to process a transaction.
The demand for more ETH and the ability of the blockchain platform to execute smart contracts is the reason why the gas price fees remains high.
Frequently Asked Questions
Can I determine a transaction’s gas from the Gas Price chart?
The gas price chart is an indicator of the trend on transactions on the Ethereum platform. While the content of a chart may help understand the average amount of gas that a transaction requires to be processed, it still depends on the miner’s choice to process your transaction. However, the analytics for highcharts page can help you determine the gas limit for your transaction.
How do I pay the gas price for a transaction?
The gas fees is valued in a unit of ether, which is the gwei. Since average transactions need a minimum of 21,000 gas, you’ll need to use tokens to pay the transaction fees from your wallet.
How Does a Wallet Work?
Your wallet works like an application, where you have an account similar to your email address. With it, you can manage your ETH or buy in Gwei. It’s activated with a token. You can not share your tokens with a friend or other users.