What is gas in cryptocurrency

Commission on transfers

Gas is used to reward miners for processing transactions. Before the London hardfork (a change in the network protocol), they received the entire commission for confirming the transfer. Now a mechanism of base fee is introduced, which is burned after a new transaction is executed. Its rate changes when a new block is formed. The main remuneration of miners became “tips” – payment for the high priority of the implementation of the transfer of coins.

Ethereum is a programmable platform. The transaction fee provides the necessary level of network security. In another case, any developer could create a program to perform an infinite number of transfers between wallets.

Writing a smart contract to the blockchain

Its inclusion in the Ethereum network costs more gas than a simple transfer. The price of writing a smart contract depends on the complexity and the number of operations performed in it. Therefore, developers reduce its algorithm to a minimum. In a good smart contract, part of the calculations are performed outside the Ethereum blockchain.

How the fee for a transaction is calculated

The value of one gas is 125 Gwei (as of November 25, 2021). To make an ETH transfer into the blockchain, 21 thousand Gas will be required. Knowing these values, you can calculate the commission for a transaction in ETH coins. The following formula is used: 21,000 x 125 Gwei. The average commission for sending cryptocurrency under these conditions is 0.002625 ETH ($11.81 on November 25, 2021). The cost per unit of Gas varies depending on the workload of the system. When the number of transactions in the network increases, the price rises.

DeFi’s Impact

Decentralized finance peaks in popularity between 2020 and 2021. DeFi is an ecosystem that enables services based on smart contracts.

The growth in the number of DeFi market users has increased the complexity of the Ethereum system. Transaction fees on the network have become higher than Bitcoin. Additional growth in the number of users is related to Yield Farming. This tool allows you to get tokens from investing cryptocurrency in a project. Some of them offer profits of up to 2000% per year.

Carrying out the London hardfork in 2021 corrected the situation with high fees for a while. The maximum fee increase was set at 12.5% per block. This made commissions more predictable.

Calculating the amount of gas for a transaction

Simply sending ETH coins costs the user 21k units of Gas. Other transactions may have different fees. Developers of smart contracts usually specify the recommended amount of gas in cryptocurrency themselves. This also applies to projects involving ICOs (initial digital coin offerings).

The estimateGas function allows you to calculate how much gas will be required for the transaction. The value is not exact. The function should be used carefully. First of all it is necessary to set the gas limit with a reserve. The work is based on the Solidity programming language, which is used to create smart contracts in Ethereum.

How to track the price of gas

To see its cost is possible on special sites and channels in Telegram. Popular price monitoring services are listed in the table:

How to set or lower the price of Gas

Demand for etherium is falling due to high transaction fees. Since the beginning of 2020, their average size has increased 12 times. It has become expensive to transfer small amounts into ETH. Because of this, the issue of the high cost of a unit of Gas is relevant.

Examples

There is an opportunity to pay less commission at certain times. During the day, the number of transactions in the Ethereum network is different. The lowest blockchain load is from 3:00 to 7:00 (MSC).

The official Ethereum wallet and MyEtherWallet service do not allow you to set the desired Gas price. They offer recommended prices based on the priority of the transaction. The services’ own algorithms are used to calculate them. The user has to choose the price with the required speed of transaction confirmation.

The MetaMask wallet gives the opportunity to set any price (not less than 1 Gwei) of Gas in cryptocurrency independently. The project recommends that only experienced users do this. A small value can affect the speed of transaction execution. However, if the complexity of the network is low, there is a probability of a transaction even with a Gas price of 1 Gwei.

The impact of Gas in Ethereum

It is often difficult for users to understand what this unit represents. Its task is to maintain the operation of the network. The main goals of gas are to keep the system safe, calculate the payment to miners for mining blocks and processing transactions. Let’s talk more about the impact.

On miners

Gas incentivizes nodes to use their own and connect new computing power, without which the Etherium blockchain cannot work. The miners are rewarded for this in the form of cryptocurrency. The speed of transaction confirmation depends on its size. Priority is given to transactions from which the miner will make the most profit. Higher the commission – faster the processing speed.

On the stability of the network

An important task of gas in cryptocurrency is not only to provide remuneration to miners, but also to increase the level of security of the network. Because of it, the probability of an attack on the blockchain becomes quite low – ETH coins will run out, and the transaction will be rejected.

The Ethereum 1.0 blockchain does not have time to process all transactions. The main goal of the Etherium network is to replace the current financial system with a decentralized one. But high fees make this likelihood less likely. In 2022, the blockchain will be upgraded to Ethereum 2.0. That will solve the problems:

• Scaling.
• High fees.
• Low transaction confirmation rates.

There will also be increased security for users of the network.

Which cryptocurrencies use gas

Ethereum is not one platform that uses such a unit. Users refer to the NEO project as the “Chinese ether.” In addition to the main cryptocurrency, a separate token GAS was created within its framework. It is necessary for the operation of smart contracts and rewards to miners. When mining new blocks, 8 tokens are generated. They are distributed among users who have NEO coins.

Ethereum Classic was launched as a result of the hardfork of the Etherium network in 2016. The principle of gas in the system remained the same, but the amount of gas needed for various operations is different.

Conclusions

Gas in cryptocurrency is a unit of measurement of the amount of calculations required for an operation. The cost of these processes is calculated in ethereum. Depending on the number of raw transactions, the price of Gas often changes. It helps in the operation of the system, provides security and rewards to miners.

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