The Secret Behind Ethereum Gas Prices
Fuel comes in different forms—it could be the cup of coffee we drink before we start our day, the morning workout to release dopamine and endorphins, or…well, the gas that makes a car go vroom. And just like how humans and cars need their fuel, so does Ethereum (ETH). For this particular digital asset, its energy source is called Ethereum Gas.
Before we get into it, let us give you a brief refresher. What is Ethereum? To put it simply, it’s a cryptocurrency as well as an open-source, blockchain-based software platform. Its revolutionary feature is its ability to enable the use of smart contracts and distributed applications (DApps).
What is Ethereum Gas?
Gas is essentially the costs or fees for making transactions on the Ethereum blockchain. The tricky part is that Ethereum gas prices aren’t fixed—the amount of gas required for each transaction depends on how complex the exchange is. For example, a simple transfer could cost you 21,000 gas (the minimum requirement for every transaction). On the other hand, a more complicated one, such as the ones used in decentralized finance (DeFi), could set you back 1,000,000 gas.
Each unit of gas has a price. Ethereum gas prices are denoted in gwei or nanoeth, where 1 ETH = 1*10^9(1,000,000,000) gwei. Let’s say that the price of gwei is 5. In that case, a 21,000 gas transaction would cost 21,000*5 = 105,000 gwei (0.000105 ETH).
Source: ethereumprice.org/gas/
Essentially, gas is used by the Ethereum Virtual Machine (EVM), the digital mechanism behind the cryptocurrency, so that decentralized applications can run and self-execute smart contracts in a secure and decentralized fashion. They’re your way of compensating miners who use their computational power to process and validate your transactions.
In most cases, Ethereum gas and fees are mainly determined by the supply and demand between the network’s miners. This means that they can decline a transaction if the gas price doesn’t meet their standards. It also means that the cost of gas fluctuates with the supply and demand for processing power.
This is where the “Ethereum gas limit” comes in. “Gas limit” refers to how much you’re willing to spend on a transaction. Setting a higher gas limit lets you tell the Ethereum miners that there’s more work to do for a transaction. At the same time, miners could ignore your transaction if you set the gas limit too low.
To simplify it further, let’s put it into real-world examples. Running your car for X miles will require Y gallons of fuel. In the same breath, transferring X amount of money from your bank account to a friend’s may cost you Y dollars in processing fees. In both cases, X is the utility value and Y indicates the cost of performing the process. Similarly, a smart contract on the network may be worth 50 ether (X) and the gas price required at the time would be 1/100,000 ether (Y). Ethereum miners are then rewarded with this particular fee in return for their computational services.
Why the gas system exists
The concept of gas was introduced so that Ethereum’s network could distinguish the computational costs from other expenses. By having a separate unit for this purpose, a practical distinction is created between the computational costs of the EVM and ETH’s actual valuation.
Other than that, there’s one main reason that this system exists: incentivization. We have to remember that Ethereum is still using the Proof-of-Work (PoW) system, which means that they heavily depend on the hash rate of their miners. The more miners there are, the higher the hash rate. The higher the hash rate, the more efficient and secure the system is.
To attract more miners into the system, the developers have to ensure that Ethereum mining is as profitable and as alluring as it can be. On the Ethereum blockchain, there are two ways miners make money.
The first is pretty simple: mining blocks and getting block rewards. The second way of making money on the Ethereum blockchain is by controlling a block and ensuring that transactions are put in. This is where the gas system comes in. To put transactions in the block, miners have to use their computational power to validate smart contracts, which they can charge for. Essentially, this is the miner’s fee and it motivates miners to actively participate in the Ethereum ecosystem.
Why doesn’t Bitcoin (BTC) have this system?
When BTC was created in 2009 by Satoshi Nakamoto, a new type of currency was born. It was a currency that could be transferred between two people without the need for a middleman. It was also a currency that was completely decentralized. However, that was it. Although it was revolutionary, BTC only allowed for monetary transactions—there was no way to add conditions to these transactions.
Andy could send Bruno 5 BTC, but he can’t put conditions on that transfer. For example, let’s say that for Bruno to get the 5 BTC, Andy needs specific tasks completed first. These types of conditions would need extremely complex scripting. Something was missing…and that something was a smart contract.
Smart contracts are automated and self-executing contracts that could help you exchange property, money, or anything of value in a way that’s transparent and conflict-free without the need of a middleman.
When is the best time for an Ethereum transaction?
Looking to save money on your Ethereum transactions? Well, you’re in luck, we studied Ethereum Gas charts and found the best times to transact.
The busiest times and therefore, the most expensive times, are from 8 AM to 1 PM (EST). This comes as no surprise because Europe and the US are all fully awake and at work during that period. By contrast, the least busy time is between midnight to 4 AM (EST) —the time the people in the US are asleep, Europe is just about to start their day, while Asia is finishing up their workday.
This means that the best time to make an ETH transaction, therefore, is on a Saturday or Sunday—that’s when gas prices are at the lowest. On the other hand, the worst times are on Tuesdays and Thursdays, where the network is at its busiest and the gas prices are at their highest.
Day The time when ETH Gas is
lowest (EDT/EST)
Sunday 2 AM to 3 AM
Monday 1 AM to 2 AM
Tuesday 6 AM to 8 AM
Wednesday 11 PM to 7 AM
Thursday 1 AM to 3 AM
Friday 10 PM to 8 AM
Saturday 2 AM to 3 AM
All this data means that if you hold off a bit on your transactions or send lower fees for low-priority transactions knowing that they’ll be confirmed in a few hours, you could save some gas in the process.
With the price spikes of Ethereum (and with it, its rising fees), it might be worth looking into how you could save some gas. Find the best times to buy Ethereum and then plan them accordingly. Who knows? It could save you a lot of money.