What Is Ethereum Gas Fees? How Does It Work?

By Fotis Dixon


Reviewed by: Fotis Dixon


Ethereum Gas Fees

Ethereum is by far the second-largest cryptocurrency network by its market capitalization in the world.

The Ethereum blockchain despite taking second place just after Bitcoin is still known to be more flexible than Bitcoin.

In this article, we will look at what Ethereum Gas Fees are and how they work in the Ethereum blockchain.

What are Ethereum Gas Fees?

Ethereum Gas fees are essentially the price that is paid to compensate the network operators running the Ethereum blockchain.

These fees are essential to conducting transactions or executing contracts on the Ethereum blockchain platform.

Ethereum Gas Fees

The native coin of the Ethereum network, Ether (ETH) serves its function to facilitate payment of gas fees for the blockchain network.

The transaction fees that take place on the Ethereum blockchain are essentially referred to as “gas fees.”

Now, let us take a look at how Gas Fees work and how they benefit the Ethereum blockchain operators and users.

How do the Ethereum Gas Fees work?

The Ethereum Gas Fees are incurred on every transaction that occurs on the Ethereum network such as sending or buying tokens or transacting with NFTs.

The Ethereum network tokenomics works with a direct correlation to the congestion in the network and the gas fee amount demanded ie. The busier the network congestion the larger the gas fees incurred will be.

When we take a look at the receiving end of the gas fee mechanism many will be wondering what the gas fee money is being spent on. The answer to that is simple.

As compensation for their contributions to maintaining the blockchain, the Ethereum network’s validators get the gas fee.

Let us now look at a process that goes on in the network to show the workings of the Ethereum gas fee mechanism.

The Step-by-step process to buy ETH with an emphasis on gas fees

The following steps show the involvement of gas fees in an Ethereum buy transaction.

  • Step 1

The first step involved in ETH buying is to initiate a transaction with a specification of the amount, volume, and other details by which you want to carry out your order.

  • Step 2

In the next step, the user must approve the gas fee that they would like to offer to carry out the transaction. The user must choose an acceptable amount as a gas fee in order to carry on with their order.

A lot of the exchanges show their users the ideal gas fees that can get the order carried out in the fastest and the most efficient way.

  • Step 3

The Ethereum network will receive the transaction information in the third step of the process, and it will sort the orders in the queue based on the maximum gas fee you have chosen to pay.

  • Step 4

The transaction is then validated by Ethereum network validators after being assembled as new blocks.

One important thing to be noted in this step is that the transaction that offers the highest gas fees is often selected and executed first due to the increased profit margin that it offers to the validators.

  • Step 5

The transaction gets completed once it has been included in a block and the block gets added to the blockchain network.

  • Step 6

The final step in the process from the part of the buyer concludes with the updation of the wallet by the credit of ETH and the withdrawal of the gas fees that you have offered for the execution of the transaction.

  • Step 7

The final action that takes place in the network concerning your transaction is that your validator gets the gas money that you have offered for the order execution as a reward along with all the other fees from the transaction block.

With reference to the working of the Ethereum network, the base fees in the network are burned down to prevent the currency from going into inflation.

Now let us look at what we can gather from the information that has been presented in the previous sections.

The Bottom line

From the following information that has been mentioned in the sections above anyone can get a basic grasp on what a gas fee is and the mechanism that works behind it in the Ethereum network.

It is important to understand and manage your spending on gas fee offerings for each execution to make the most out of your purchases and other transactions that you carry out in a blockchain network.

Fotis Dixon

Fotis Dixon is a business expert from the UK. He's written lots of articles about the newest market research and trends, especially on cryptocurrencies. Fotis is good at breaking down different topics to give useful information, helping readers stay updated on emerging trends.

View All Posts

Leave a Comment