The Ethereum network, unlike the Bitcoin network, contains not only a cryptocurrency of the same name, but also has Gas and Gas Limit. The latter allows users not only to pay for transactions but also launch smart contracts and DApps, as well as store data on the blockchain.
The platform of the world's second-largest cryptocurrency by market capitalization Ethereum was launched in July 2015, by Vitalik Buterin. The goal of the platform is to provide developers with an open distributed network for starting their own decentralized applications (DApps) and smart contracts. If the Bitcoin network plays the role of a peer-to-peer payment system, then Ethereum is designed to execute the program code using a decentralized virtual machine (EVM).
Ether is the internal cryptocurrency, which is mined to maintain the network, and, unlike other cryptocurrencies, its role is not limited to payments. One coin of Ether is divided into Finney, Szabo, Gwei, Mwei, Kwei, and Wei, where Wei is the smallest Ether unit. The developers gave such names to the Ether denominations to honor the famous personalities who made a significant contribution to the development of the cryptocurrency. One ETH is equal to a thousand Finney, one million Szabo, a billion Gwei, and a quintillion Wei.
Transactions in Ethereum
A fee received by the miner is charged for carrying out any transaction and actions in the Ethereum blockchain. Network miners confirm transactions and decide which ones will enter the new block of the network. The transaction fee is calculated in Gas, and paid for in Ether. Thus, the gas is the "fuel" of the Ethereum network, which is used to conduct transactions, execute smart contracts, and launch DApps, as well as pay for data storage.
The Gas has two components, a Limit and a Price. Thus, the work of the Ethereum network is ensured by:
Ether (ETH) is the Ethereum network's native cryptocurrency, the second-largest by market cap on the crypto market.
Gas is the unit of calculation that indicates the fee for a particular action or transaction.
The Gas Limit is the maximum amount of Gas that a user is willing to pay for performing this action or confirming a transaction (a minimum of 21,000).
The price of Gas (Gas Price) is the amount of Gwei that the user is willing to spend on each unit of Gas.
The sender sets a limit and a gas price for each transaction. To independently calculate the total cost of a commission for a transaction in Ether, it is necessary to multiply the gas limit by its price. For example, if the gas limit is 50,000 units and the gas price is 20 Gwei, then it means that the sender is ready to spend 0.001 Ether on the execution of the transaction.
The higher the Gas price the sender is willing to pay, the more important the transaction is in the Ethereum network, since the reward of the miner will be higher. This option is suitable for those who participate in the presale of tokens of a popular ICO and want to increase the chances of including their transaction in the next block. By setting a low Gas price, however, the sender saves their own funds, for example, when transferring funds from one wallet to another.
After the transaction is completed, all unused Gas is returned to the sender's account. If the amount for the Gas Limit they indicated is too low, then the transaction is considered invalid and will be rejected in connection with the "Out of Gas" error, and the Gas spent for calculations will not return to the account. It is worth bearing in mind that the sender always pays the miners for the estimates, regardless of whether the transaction goes through or not. The processing of a transaction from MyEtherWallet will look like this:
In order to calculate the amount of Ether, the Gas Limit, and confirmation time in ETH or USD, there is an online service called ETH Gas Station. Gas Price Oracle, based on information about the latest transactions, calculates the price of Gas and the time it takes to perform the calculations by the miners. To date, it takes about 30 minutes to confirm transactions for 1 Gwei, and about 1–2 minutes for 40 Gwei.