What is Ethereum Gas?

Created by Ethos Support, Modified on Mon, 13 Feb, 2023 at 9:11 PM by Ethos Support

What is Ethereum Gas?

The Ethereum blockchain requires Ethereum gas to keep itself running in the same way that a car needs gasoline to keep the lights on. All transactions on the Ethereum network cost a certain amount of gas, depending on the current demand for gas and the size and speed of the contract one is trying to execute. In this sense, running transactions over the Ethereum network is like driving a car; if you do not use enough gas, the transaction will not find its way from one party to another.

Gas in itself is an extremely important innovation in the blockchain community. It not only improves the efficiency of Proof of Work, but it also creates a more fair and transparent space in mining in its implementation as a Proof of Work blockchain system. If none of this makes sense at first glance, fear not; we will explain Ethereum gas by starting from the basics and building up the terminology from there. We will elaborate on Ethereum gas as an innovation, and we promise that if you read this article closely, you will find yourself acquainted with all of the necessary knowledge and terms to explain what gas is to all your peers!

Bitcoin, Ethereum and Proof of Work

First and foremost, Ethereum, just like Bitcoin, is a blockchain network. A blockchain network is a type of peer-to-peer network that stores and sends data between users on the network (as opposed to within a single, central, server location). The decentralization of data sending and storage inherently makes the data more secure for users on the network, since attackers cannot find the location of the data, unlike in a centralized network that keeps data in one place. The first peer-to-peer networks posed monopolization and further security issues, since all of their security was done by centralized companies and corporations and was tied to singular entities.

Bitcoin as the first blockchain network provided a solution to this issue through proof of work, the incentivized maintenance of the network’s security by anonymous contributors across the network. The Bitcoin network was for sending Bitcoins, a cryptocurrency whose transactions were secured into blocks on an immutable public ledger (the blockchain) by those anonymous contributors who solve computational cryptographic puzzles in pursuit of a newly-minted Bitcoin (mining/miners).

Subsequent blockchains that offered transactions of digital tokens are known as first-generation blockchains. In 2015, the first second-generation blockchain was released in the form of Ethereum. Ethereum’s creator, the prodigious Vitalik Buterin, believed that Bitcoin was revolutionary and yet incomplete. Instead of limiting transactions to tokens on blockchain networks, Buterin wanted to host a variety of secured transactions over the blockchain. Through introducing the Ethereum Virtual Machine and its Turing complete programming language Solidity, Buterin gave developers the ability to program applications that wrote customizable transactions over the network. These transactions, known as smart contracts, are self-executing and are secured using a similar, but slightly different Proof of Work scheme than Bitcoin used. This is where Ethereum gas comes into the picture.

Ethereum Gas and Gas Economics

Every transaction or smart contract executed on the Ethereum blockchain requires gas. Gas, as stated previously, is a fraction of an Ethereum token, and is used by the contract to pay the miners securing that transaction on the blockchain for their efforts. An appropriate amount of gas must be used to pay for the transaction; if the amount of gas is too low, the transaction does not occur since miners do not receive enough compensation and abandon the job. Using gas low and high limits, developers can make sure that their smart contracts run reliably over the network. This is done by paying the miners enough compensation while not losing the extra gas they pay for the transaction that would otherwise be lost to the miners after the transaction is secured.

The magic of all of this boils down to the economics of scarcity. Buterin envisioned gas and gas economics as a way to make sure that the network does not waste energy on securing pointlessly long-winding transactions. The gas system prioritizes important transactions first by making their computational costs and rewards publicly known to the miners. This adds an extra level of fairness and justice to the blockchain, making sure that all contributors involved in the security and maintenance of the blockchain are given clarity on the risks and rewards of their contributions. Just a mere six years after Bitcoin’s release, Ethereum offered a solution that rapidly improved the efficiency of the Proof of Work concept.