The fuel which keeps the Ethereum blockchain running 24/7 is provided by gas.
Gas is required for any Ethereum operation (whether it's a purchase, token sale or a hard fork).
Gas lets Ethereum measure the fees necessary for a given action to be performed, and ensures load balancing across the network.
Gas
Put simply, gas is the Ethereum blockchain's oxygen.
Specifically, it is a measurement unit that determines the amount of processing effort needed on the Ethereum network to perform a given action.
Gas is required for any instruction that is determined by a smart contract on the Ethereum network, and a specified set of instructions will be executed until the required amount of gas is transmitted to a smart contract.
Why it is important to Ethereum?
Gas is crucial to Ethereum's functionality since it offers an incentivization mechanism that brings more miners to the network.
It also has a higher hashrate when a P2P network such as Ethereum has more miners, which makes the system more stable and safe.
By mining blocks, miners earn tokens, but they can also earn tokens by managing their mined blocks temporarily and manipulating them for profit.
Computational power is also required to validate certain contracts when miners mine a block and encrypt it, and the gas functionality of Ethereum enables them to charge a fee for this, which can become a separate income source in and of their own right.
On the Ethereum network, gas provides an utterly vital incentivization process.
How Ethereum’s gas limit works
Before taking place, any transaction made on the Ethereum network must have a gas limit specified.
Although the sums involved may be infinitesimal, considering the gas cap as the absolute maximum someone is prepared to pay for a transaction is beneficial.
Generally, the transaction fee (gas price) depends on the complexity of the transaction involved. A relatively small gas charge would likely be incurred by simple acts such as sending Ether to a friend, whereas it would be far more expensive to build a smart contract to be used in a token sale.
The more complicated a deal, the more gas you have to pay to conduct it.
In order for a transaction to occur, a gas cap needs to be defined as previously set out. This implies that first the gas limit needs to be set by the person looking to perform the transaction.
It's worth bearing in mind that each transaction has a different gas cost if you do this yourself (for more insight into how much gas each type of transaction requires, see the Ethereum Yellowpaper).
That said, in each transaction, the actual amount of gas used is variable. As an example, this means that even though it may theoretically take 120 gas to pass ETH to a buddy, the network could actually only end up using 100 gas to complete the transaction.
If there is gas left over at the end of a transaction, the person who initiated the transaction is automatically refunded.
This refund is one way for miners to receive tokens for their activities.
But there's another case, one where the end user's gas limit is not sufficient to perform a given transaction. The process in question will "run out of gas" and return to its original state when this happens in the middle of the transaction.
The person who initiated the transaction still has to pay the full gas fee, however, and the transaction itself is still added (even though it has not been finished) to the Ethereum blockchain.
What’s the difference between gas limit and gas price?
In order to complete a purchase, the gas cap is the maximum amount of gas you are able to pay.
Although the standard gas cap is 21000 for most transactions, this will vary depending on the transaction's complexity.
You will not be able to undercut the amount needed for a transaction, because the gas cap is determined by the Ethereum network; you will need to pay the maximum amount of gas every time.
Before starting a transaction, if you do not set the gas limit high enough, you can receive the dreaded "out of gas" error and also use the gas limit set at the beginning of the transaction.
On the other hand, the price of gas is an adjustable rate that reflects the amount one spends per gas unit. Depending on how easily you want a transaction to be mined, gas prices can go up and down (or executed).
It will also decrease the overall cost of a given transaction and lower the amount of gas price charged, but it will also mean it takes longer, too.
Paying a higher gas price would guarantee that a transaction in the blockchain is prioritized, whereas paying a lower gas price would essentially ensure that a transaction does not take place for at least a few minutes in most instances.
How gas price impacts mining performance
When mining your block, miners collect any transaction fees involved. Naturally, higher gas prices attract miners, provided that they represent a higher incentive for mining a given block successfully.
With that in mind, setting the gas price for a transaction high enough to be tempting for miners is always useful.
This is a reasonable rule of thumb to use, considering that most miners prioritize gas price transactions. Setting the price of gas higher would mean that the purchase is processed more efficiently, but it will also ensure that the price will also be higher.
In general, a lower gas price is less appealing to would-be miners, so it would typically take longer to complete transactions that have a lower gas price.
If you are trying to complete a purchase as cost-effectively as possible, then it could be a smart idea to set a lower gas price.
Pros and cons
Because of their considerable cost and benefits, gas limits have provoked controversy in the community.
The existence of gas caps, on the one hand, ensures that miners are adequately paid for their work and controls the network's supply and demand.
It carries out the vital load balancing role, something that would be hard to do without a gas limit in place.
Gas caps, on the other hand, often mean that adding information to the blockchain is both expensive and time consuming for many.
Although the current state of adding data to the Ethereum blockchain is rather inefficient, many attempts are underway to scale the platform, and this gives many hope that as time goes on, gas limits will eventually decrease and the network will become more effective.
