What are Gas Fees?

Most transactions on the blockchain require computational power to be executed. Gas is the unit of measurement we use to describe the computational power needed to perform such transactions.

How are gas fees determined for different transactions?

Now, not all transactions on the blockchain are equal. Different operations or interactions in the blockchain require different amounts of Gas.

Let’s use an analogy (with trucks) to help explain this:

Three trucks, carrying different amounts of weight will require different amounts of gas to complete the same trip.

  • An empty truck requires 10 Gallons of gas to perform a 100 miles trip.
  • The same truck carrying weight at its mid capacity, will now require 15 gallons of gas to perform a 100 miles trip. So, in this second example, the heavier the transaction, the more gas is required to transfer the same amount of value.
  • The same truck at its max capacity will now require 20 gallons of gas to perform a 100 miles trip. So in this case, the heavier the truck, the more gas is required to travel the same distance.

Now, talking about blockchain technology, the cheapest transaction that can be executed on the Ethereum blockchain is the transfer of ETH, and using the previous analogy, we can say the following:

  • Sending 1 ETH from one wallet to another wallet, requires 21,000 units of Gas for the transaction to be executed.
  • Sending 1 ETH worth of DAI (another token), requires 65,000 units Gas as DAI is not a native token of the blockchain but a custom token under the ERC-20 standard.
  • Transfer of a Non Fungible Token, like a domain you believe is also worth 1 ETH may cost 86000 Gas or more depending on all the information and configurations the domain is being transferred with.

In the case of the truck example above, you typically pay the gas in dollars, and the price per gallon depends on the demand and supply of gas at the moment you are purchasing it.

How are gas fees paid? What type of payments are accepted?

In the ethereum blockchain, gas is not purchased in dollars but in Gwei and depending on the demand and supply at the moment you are performing your transaction, the price in Gwei for the amount of gas required to execute your transaction in the blockchain will vary.

Since the only unit of value valid in the blockchain is ETH, you need to pay those transactions in ETH instead of Dollars or any other currency.

Therefore, when executing transactions on the Ethereum blockchain, to calculate the amount in dollars you need to spend will depend on the following:

  • the amount of gas needed to execute the transaction,
  • the price of gas in Gwei, and
  • the price of ETH in dollars at the moment you are performing the transaction.

Can I estimate gas prices before I make a purchase?

You can find current estimates of gas prices in Gwei in websites like EtherScan or Gas Now. Bear in mind that the amount in dollars displayed in those websites is just a calculation for the simplest transaction that can be executed in the blockchain, which is the transfer of ETH.

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