Ether Gas Price
Definition of ‘Ether Gas Price’ - The Ethereum gas price is the amount of ether charged for processing a transaction on the Ethereum blockchain.
What is the Ether gas price?
Ethereum Gas Price Definition – The Ether (ETH) gas price is the fee charged for processing a transaction on the Ethereum blockchain. The gas price is quoted in terms of gwei — a unit of the ether cryptocurrency coin. The gwei are paid to miners, which process transactions by validating and recording them on the Ethereum blockchain.
The gas price is based on transaction activity on the blockchain’s processing layer and is unrelated to the value of the Ether cryptocurrency. One gwei equates to 0.000000001 ETH.
Miners determine the Ethereum gas price depending on demand for the network’s processing capacity for payments, transfers, and smart contracts at any one time.
To avoid the network from being spammed, the miners charge senders the gas fee to process transactions. Transaction orders on a blockchain wait in a mempool (memory pool) where miners can see the amount of gas each transaction will pay and prioritize those with the highest fees.
The Ethereum blockchain runs a Proof of Work (PoW) consensus mechanism, which requires mining computers to solve complex cryptographic calculations to validate transactions. The gas price is the cost of having miners carry out the computational cost of processing transactions using the Ethereum Virtual Machine (EVM) to run smart contracts.
Ethereum was one of the first blockchains to enable smart contracts, which are executed to enable decentralized applications (dApps) including decentralized finance (DeFi).
As DeFi applications took off in 2020 and non-fungible tokens (NFTs) emerged in 2021, the use of smart contracts skyrocketed and caused congestion on the blockchain, causing gas prices to spike.
The largest Ethereum gas consumers include the Uniswap decentralized exchange and the OpenSea NFT marketplace.
What is the Ether gas price today?
As the use of the Ethereum blockchain has grown, it is reaching the limits of its scalability and becoming congested more often.
The highest Ethereum gas price seen in gwei terms was over 500,000,000 gwei on 11 June 2020. In dollar terms, the price hit a high of $70 in May 2021 as the value of ETH soared. The maximum daily limit on the Ethereum blockchain is 100b in gas.
Soaring gas prices have prompted developers to launch alternative blockchains to compete with Ethereum that can run smart contracts with lower fees. Layer 2 blockchain protocols such as Arbitrum and Optimism aim to provide enhancements to Layer 1 networks like Ethereum, including increasing scalability to reduce processing costs.
The Ethereum gas price was previously determined by an auction mechanism, under which miners prioritized transactions offering the highest fees.
That resulted in large fluctuations in the price, as at times when there were more transactions waiting Ethereum users would have to set higher gas prices to ensure their transactions would be processed faster. The price would then fall back when there were fewer transactions waiting.
But the Ethereum blockchain is in the process of shifting from PoW to a Proof of Stake (PoS) consensus mechanism in 2022, which does not use a validator’s computational power but is based on the number of coins they hold.
In August 2021, the London Hard Fork upgrade to the blockchain implemented Ethereum Improvement Proposals (EIP) including changing the gas fee mechanism from the auction system to a hybrid price combining a base fee set by the network and a priority fee paid to miners as a tip. Users can set a maximum gas fee they are prepared to pay. The EIP-1559 aims to reduce the volatility in the gas price and make it easier to estimate the fees that a transaction will incur.
The base fee is burned or destroyed, running the number of ETH in circulation, and making the cryptocurrency increasingly deflationary in value as its usage grows.
The total gas fee will depend on the type of transaction and the priority the user assigns. Transferring tokens to another wallet is typically cheaper than executing a smart contract, for example providing liquidity to a DeFi service such as a yield farm.
How are Ether gas fees paid?
The gas fee for a transaction is automatically deducted from a user’s wallet in addition to the tokens they send, rather than being taken from the amount being sent.
This means the recipient will receive the full number of tokens and the sender needs to have enough ETH in their wallet to pay for the gas fee.
Even if the transaction is in another Ethereum-compatible cryptocurrency token, the gas fee is always paid in ETH. The tokens being sent and the ETH gas fee are paid simultaneously in a single transaction.
If the sender does not set a high enough gas fee limit, a transaction will fail in an “out of gas” error as it will not cover the cost of processing the transaction plus sending the tokens. But the gas fee will still be deducted from the sender’s wallet to cover the computational cost of attempting to complete the transaction.
Cryptocurrency wallets typically estimate the gas price for a transaction, so that the user can ensure they have enough ETH in the wallet to cover the cost. Sites like Etherscan show the current gas price so that users can set a gas limit above that level. The higher the gas price they set the more likely it is that their transaction will be completed successfully.
Why is the Ethereum gas price so high?
The ether gas price has climbed as adoption of the blockchain for decentralized applications has grown and the network has become increasingly congested. The fee is based on the level of activity on the blockchain and rises as the number of transactions pending at any one time increases.
How can I reduce my ETH gas charge?
You can reduce the ether gas price you pay by choosing times when the Ethereum network is less busy. You can check the current gas price before sending a transaction to avoid high fees. Some cryptocurrency wallets enable you to set a limit for the amount of gas you are willing to pay for a transaction.