Gas is another term for the transaction fee for using smart contract-compatible blockchain platforms like Ethereum. The price per transaction is dynamic in nature and depends on the demand and supply of the virtual machines needed to conduct the transaction.1
Why is gas needed?
When one makes a payment through a bank, a transaction fee is normally levied. This fee is charged for the services and infrastructure needed to process the transaction. Similarly, blockchain networks require resources to execute a transaction. These transactions can be financial payments or smart contracts. Validator nodes are responsible for verifying the transactions and updating the ledgers. Some computational energy is expended in the process for which an expense is incurred. To compensate for these machines, the users have to pay in the form of gas. Take Ethereum for example, the price is fixed as a fraction of 1 Ethereum and is expressed in gwei.2 One unit of ETH is equal to 109 gwei.
Gas pricing is dependent on several factors. Higher demand for the blockchain’s resources would drive gas prices higher. The nature of the transaction will also determine the amount of gas fees that the user has to pay. Transactions involving long-term contracts have a higher gas bill compared to a one-time payment. The miners play an active role in determining the gas price in a proof-of-work blockchain.
Example
Suppose the price of a transaction is set at 50 gwei. The user making this transaction will have to pay an amount equal to 50*10-9 ETH, which is a relatively small amount in terms of the native cryptocurrency.
References
1 Gas (Ethereum) Investopedia.
2 Gas price Coinmarketcap.
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