The Ethereum network is changing how people exchange money, manage shares or even buy property. The prospect of gaining more privacy, security and control over finances is a strong drawcard!

But negotiating the network can be daunting if you’re struggling with concepts such as gas, transactions and miners.

Our beginner’s guide to gas fees will hopefully help remove some of the guess work!

What is gas?

One simple way to think about gas is as fuel. To run a car, you need fuel—to run an application on the Ethereum network, you need gas.

Computational resources are required to execute every transaction and operation on the network. And every computation executed requires a fee.

Gas refers to the unit that measures the computational effort required to process a transaction.

Gas fees are the payments users make to miners who execute the transaction and include it in a block.

Ether is the currency used to pay gas fees. Gas prices are denoted in Gwei, which is a denomination of ether.

Why are gas fees charged?

According to Ethereum, the gas fee system allows efficient use of decentralised resources for the benefit of all parties. Users can exchange money, property, shares or contracts in a transparent manner without a go-between and with greater privacy. Gas fees deter spamming, attract miners and increase Ethereum network security.

How do transactions work?

Transactions are cryptographically signed instructions from accounts managed by people. A simple example is the transfer of crypto from one account to another.

On the Ethereum network, miners are paid gas fees to execute these transactions. You decide the gas price (cost of each unit of gas) and gas limit (maximum total gas you’re prepared to pay).

When you submit the transaction, a transaction hash is generated and the task goes into a pool of pending transactions. Miners pick which transactions they want to complete then bundle them into a block.

Miners compete to solve a complex maths problem to earn the right to add a block of transactions to the Ethereum blockchain. The reward includes the gas fees from all transactions in this block. Unused gas is refunded to user accounts.

What gas price should I pay?

According to ETH Gas Station, on an average day it takes between 15 seconds and five minutes to process a transaction if you pay the standard gas price. The time taken depends on how much you’re prepared to pay in gas fees and how busy the network is.

With a limited number of transactions in a block, the concept of supply and demand applies. As more people compete to have transactions included in a block, the demand for fast transactions leads to higher gas prices, plus longer wait times for those submitting lower prices.

Consider how important your transaction is then approach it like an auction. If you need the transaction completed quickly, submit a higher-than-average gas price. If you can afford to wait, offer an average or below average price.

Web pages such as ETH Gas Station and Etherscan Gas Tracker offer regular updates on gas prices and estimated transfer and interaction costs. With a little practice, you’ll soon gain confidence in negotiating the Ethereum network.

Meta description: Are you learning how to make the best use of the Ethereum network to manage your finances? Take a look at our guide to understanding gas fees.

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