Introduction to Blockchain: What exactly are Gas, Gas Price, and Gas Limit?

The Ethereum network, also known as the Ethereum blockchain, operates on the cryptocurrency Ether (ETH). When you send tokens, initiate a contract, or perform any other operation on the blockchain, you must pay for the computation, calculated in Gas, and paid in Ether.

Miners on the Ethereum blockchain charge fees for any transactions, smart contract execution, DApp deployment, and data storage payments. Miners confirm transactions and decide which transactions can enter new blocks. Regardless of the success of your transaction, you must pay for the computation. Even in the case of a failed transaction, miners still need to validate and execute your transaction, so you are charged for the validation, similar to a successful transaction.

What is Gas Price, Gas Limit, and Tx Fee?

What is Gas Price?

Gas Price is the amount of ETH you are willing to pay per unit of Gas, usually denoted in Gwei where 1 Gwei equals 0.000000001 ETH. For example, setting Gas Price at 20 Gwei is equal to Gas Price = 0.00000002 ETH.

If you want your transaction to be verified and included in a block faster by miners, it is recommended to set a higher Gas Price. However, if you prefer to spend less, you can achieve this by lowering the amount you pay per unit of Gas. Therefore, the price you pay per unit will impact the speed of transaction confirmation.

MyEtherWallet Official Guide on how to bypass Gas Price limit

What is Gas Limit?

Gas Limit is referred to as the maximum amount of Gas units you are willing to spend on a transaction to avoid errors in smart contracts. Lowering the Gas Limit will not help if you do not want to spend too much on Gas. Sufficient Gas must be included to cover the computational resources used; otherwise, your transaction will fail due to "Out of Gas."

The transaction fee incurred will be deducted and used as an incentive for miners. If a transaction is completed and the Gas consumed does not reach the Gas Limit, only the actual Gas consumed will be charged. In other words, the maximum fee that can be charged for a transaction is Gas Limit * Gas Price.

*The standard Gas Limit for a typical transaction is 21,000

Transaction Fee (Tx Fee)

Transaction Fee (Tx Fee) = Gas Limit * Gas Price

Using a simple analogy of refueling a car, Gas Limit is like the amount of fuel needed for the car, and Gas Price is the price per unit of fuel. If a car needs 21,000 liters of fuel to travel from Taipei to Kaohsiung and the price per liter is 20 NT, the total fuel cost would be 21,000 liters * 20 NT = 420,000 NT.

For an ETH transaction, the transaction fee would be 21,000 Gas Limit * 20 Gwei Gas Price = 420,000 Gwei. Therefore, the transaction fee Tx Fee = 420,000 * 0.000000001 ETH = 0.00042 ETH.

In conclusion, this provides a brief overview of Gas, Gas Price, Gas Limit on the Ethereum network, and how to calculate transaction fees. If you are in a hurry, setting a higher Gas Price can prioritize your transaction over others with lower Gas Prices for faster verification. If time is not a concern, setting a sufficient Gas Price will be adequate for transaction verification.

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