Gas is the fee required to successfully conduct a transaction or execute a contract on a blockchain. The amount of gas required for a transaction depends on its complexity. Gas is paid in the native cryptocurrency of the network, such as Ether (ETH) on the Ethereum network. ^[1]

Overview

Gas is the transaction fee that users pay to miners on a blockchain protocol to have their transaction included in the block. The gas price is determined by supply and demand and can fluctuate depending on network congestion. If there is more demand for transactions, miners can choose to include the transactions that pay more, thereby compelling users to pay more to have their transactions processed quickly and efficiently.

Gas fees are specific to smart contract blockchains. Ethereum was the first blockchain to use smart contracts and the first to introduce the practice of gas fees. Nowadays, many competing layer-1 blockchains like Solana, Avalanche, and Polkadot charge gas fees to use their networks.^[6] A gas fee of the Ethereum network is priced in tiny fractions of the ether (ETH) denominations called gwei. If the network is very busy and miners are struggling to keep up, gas prices rise. If the network is experiencing a slower period with excess mining capacity, prices drop.^[1][3][4]

Ethereum Gas Fees

Ethereum has two validation systems, Proof of Work (PoW) and Proof of Stake (PoS). Each validates transactions in different ways. PoW uses crypto miners to approve transactions, and PoS uses Ethereum staked by investors. In both cases, gas fees are paid in exchange for validating transactions.^[5] Gas fees are typically measured in gwei and one gwei is equal to 0.000000001 ETH.^[2]

ETH Gas Fee Calculation

Ethereum is the largest smart contract blockchain, and after the London upgrade of 2021, the formula to calculate Ethereum crypto fees is as follows:

• Gas fee = Gas limit * (base fee + optional tip)

Here, the "gas limit" is the maximum gas used on the blockchain for a transaction measured in "units." By default, the Ethereum blockchain sets the gas limit to 21,000 units. The "base fee" is the minimum amount of ETH needed to be paid to send a transaction on the blockchain. These fees are measured in gwei, with one gwei equaling 0.000000001 ETH. Ethereum's base fee will increase or decrease depending on network activity. "Optional fee" is a discretionary fee that users can add on top of the base fee to encourage miners to prioritize some particular transactions over others.^[6] 

However, the high cost of gas can be a barrier to entry for some users. There are a number of ways to reduce the amount of gas required for a transaction, such as using a less complex transaction or optimizing the code of the smart contract. There are also a number of projects, such as Polygon, Arbitrum, Loopring, etc., working on ways to reduce the overall gas consumption of the Ethereum network.