Gas in crypto works just like how gasoline fuels your car. Without it, you wouldn’t be able to drive your vehicle and go to your desired destination. So gas in crypto are fees that you must pay for your transactions to go through.
The gas fees you pay go to miners, who perform calculations and validations to ensure the legitimacy of the blockchain action you’re attempting to perform.
Because of this process, people can operate and perform transactions on the blockchain securely without needing a third-party broker. This makes the blockchain a fully-decentralized independent platform for everyone.
The gas price depends on how many miners are operating, how many transactions are occurring, and the actual price of the coin. Before the crypto market crashed, ETH’s average fee was around 150 Gwei per gas, which converts to approximately $20 per transaction.
Why is the Gas for ETH So Expensive?
Ethereum runs on its blockchain and is arguably the most popular blockchain that exists today.
That means more people are on their blockchain; hence more transactions occur. This is where it gets complicated, so let me explain it with a simple analogy.
- Imagine yourself standing in line at a fast-food restaurant to get yourself a breakfast. Let’s say you wanted to order a burger, but there are five of you waiting in the queue. The burger cost $5, but you would also have to pay an additional $1 fee so that they would take your order, making it a total of $6 for a single burger.
- The next day, you went back to the same place to order the same burger, but this time, twenty people were waiting in the queue, and you were shocked to see that the fee would cost you $10, plus the price of the burger itself which is $5, for a total of $15, and you thought to yourself how ridiculous that is!
- This is because this fast-food restaurant employs paid prioritization. You would have to pay a higher fee to get your order faster. You could also pay their regular fee of $1, but it would take you an hour or more. You’re starving and almost late for work, so you had no choice but to pay the outrageous fee for your order.
It works exactly like that for users who want to perform transactions on the blockchain. They would have to pay higher fees just so their request can go through reasonably fast without getting stuck in a queue.
What is Gwei?
You thought it couldn’t get any more complicated than that? Haha, think again.
- Gwei stands for Giga Wei or one billion Wei.
- One ETH is equivalent to one quintillion Wei.
- Therefore one billion Gwei is equal to one ETH.
It’s a denomination created to break down ETH due to its high-value conversion to dollars, similar to how dollars denominate to cents.
What Does Gwei Have to Do With Gas fees?
Gwei is the unit used to measure the average cost of gas for each transaction. To calculate how much each transaction would truly cost, note that you will need 21,000 gas to perform a transaction (like buying or selling cryptos), while it would take 400 gas to check your balance, and that amount of gas for each action is fixed.
You’ll have to multiply the number of gas needed by the gas price and divide it by 1 billion (because 1 billion Gwei = 1 ETH) to get the actual number of ETH.
Let’s calculate the transaction cost using that formula. Transactions will require 21,000 gas. And to make things easier to comprehend, let’s say that the average price for one gas is 1000 Gwei.
- 21,000 gas x 1,000 Gwei / 1,000,000,000 = ETH
- 21,000,000 / 1,000,000,000 = ETH
- 0.021 = ETH
This means that if the current price for one gas is 1,000 Gwei, it will cost you a transaction fee of 0.021 ETH. And if you want to convert that to dollars, just multiply it by ETH’s current price.
I hope you survived through all of that. I know it gets confusing, but if you want to understand how it works and how much each transaction will cost, then you’ll have to grit your teeth and try to analyze it. Haha!