To confirm transactions or realize smart contracts in the Etherium network, a large amount of computing power is required. This is due to the presence of miners, which spend electricity to solve cryptographic tasks. For the transfer, the user pays a little bit of etherium in the form of a commission. It is calculated in Ethereum Gwei – a unit of measurement of the cost of “gas”. Transaction prices on the network change over time as miners join and leave. They are also affected by how the value of etherium moves up and down. Nodes themselves take the price a customer pays, encouraging them to pre-select transfers with potentially high fees.
What is Ethereum Gwei
This is a commonly used unit of measure that indicates the price of gas. It is the most minimal unit of etherium. Gwei is short for giga wei. As with fiat currencies (US dollar or euro), it is divided into its constituent parts.
Other units of ETH
Each part has an official name and a designation from the community:
- Wei is the minimum unit. It is named after the programmer Wei Dai. In 1998, he described the idea of an anonymous distributed cryptocurrency system that formed the basis of bitcoin.
- Kwei is kiloway (the name Babbage is used in the community). A tribute to a mathematician from England who invented analytical calculating machines. The principles laid down have been implemented in modern PCs.
- Mwei – megawai (Lovelace).
- Gwei – gigaway (Shannon). Named after a cryptanalyst who proposed using “bit” as the smallest data value.
- Twei – tetraway, given its second name out of respect for scientist Nick Szabo, who developed the concept of a smart contract, and wrote the algorithm for decentralized digital currency (BitGold).
- Pwei – petaway, in honor of the first recipient of the bitcoin cryptocurrency (Hal Finney).
- Ether – etherium, also called Buterin.
Table of denominations
Ratio of units of measurement to etherium:
| Denomination | Value in ETH |
|---|---|
| Wei | 0,000000000000000001 |
| Kwei | 0,000000000000001 |
| Mwei | 0,000000000001 |
| Gwei | 0,000000001 |
| Twei | 0,000001 |
| Pwei | 0,001 |
| Ethereum | 1 |
Why gas is needed in Efirium
The ETH transfer fee is always calculated based on the amount of gas. This is a key feature that guarantees the security of the blockchain and keeps attackers out. Every transfer has real value, not just a line of code.
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The economic cost of execution, measured in Etherium Gwei, reduces the ability of attackers to spam the network. However, transaction processing is not its only application. Forming smart contracts and incorporating them into the blockchain is also paid for.
Gas is an internal cryptocurrency in Ethereum. This was done to separate the two from each other. Its price is set by market methods – the busier the blockchain, the higher the cost of gas.
Transactions on the network
Transactions are one of the main functions that can change or update the states of the Ethereum blockchain. They have a data structure and contain several elements that are written in blockchains:
- Nonce – the sequence number of the sender’s transaction
- Gas price – the price the user can pay for sending. It is calculated in ETH Gwei.
- Gas limit – the maximum allowed amount of gas for the transaction.
- Recipient – address of the recipient (account or smart contract number).
- Value – the amount of etherium being sent.
- Data – the data is for the actions involved in executing the transaction. Since ETH has a smart contract function, the transaction can contain messages to invoke the function. If the data field is empty, it means that the transaction is for payment and not for fulfillment.
- v, r, s – ECDSA digital signature components (encryption algorithm).
Commissions
Miners perform calculations and verify transactions. This data is combined and added to the blockchain. In exchange for their services, miners are rewarded for each block they mine, as well as the sum of all user transaction fees.
The market sets the Gwei price for the gas. If a customer is willing to pay more, their transaction will be processed faster because many miners will want to include it in their blocks. The gas price rises and falls depending on how busy the Ethereum nodes are, that is, how much data needs to be processed and added to the blockchain.
The customer can calculate the fee payment in advance through a special service – ETH Gas Station.
Summary
Etherium was originally developed as a system for executing smart contracts. Therefore, ETH is quite different from bitcoin. The emergence of so many denominated units is necessary to ensure the fairest possible experience for users. The commission that is paid to fulfill a contract is not a fixed amount. Market demand changes network capacity and prices, also the transactions themselves may contain various additional elements. A simple contract will require significantly less computing power compared to a more complex contract, and this is factored into the overall cost of gas.
Frequently Asked Questions
😟 What happens if I specify the gas limit incorrectly?
If the value for the transaction is less than the allowable limit – the balance will be returned to the sender. In case there was not enough gas, it will be burned without including the data in the blockchain.
💰 Is a commission paid when using a smart contract?
On the Ethereum network, any action that needs to be included in the blockchain is paid for.
❓ What is ERC-20?
It is the standard on which new cryptocurrencies that operate on the Etherium blockchain are issued. Some currencies may have more than one standard in which certain tokens were issued. For example, USDT, apart from ERC-20, is still represented on the TRON network under the TRC-20 standard.
💸 When withdrawing from the exchange, is it necessary to pay for gas?
Yes. Major trading platforms have established commissions (separately for each cryptocurrency) for withdrawals.
📄 What are Ethereum smart contracts?
It is an electronic agreement between multiple participants with clearly defined arrangements. The algorithm automatically executes the contract when the laid down conditions occur.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
