Ethereum is one of the best platforms for ICO’s. On the Blockchain of Ethereum ICO’s will be built and maintained. If we want to invest in an ICO which one is built on Ethereum it will ask for the transaction fee of Ether (ETH). Many people got obstructed with these new terms of the gas limit, gas price and Ether. These terms are not known to so many people and they are confusing what they meant. But the definitions of this terms are so simple to understand.
What is meant by Ether (ETH)?
Ether is like fuel for the Ethereum network which is known as the Blockchain. When we need to send tokens to a contract on My Ethereum Wallet (mew) we have to pay ETH or we can do something else on the Blockchain. Here the payment will be calculated as gas and gas will be paid in ETH. ETH will be calculated by the multiple of two terms gas limit and gas price and the equation be like.
ETH = Gas price * Gas limit
The transaction fee must be paid for the computation that carried on the Ethereum wallet whether the transaction succeeds or fail. If it fails, the miners will validate and execute the transaction and then we have to pay for that. The transaction fee ETH will be sent to the miners but not to the Ethereum wallet or any other services. The transaction fee will be received by miners for protecting Blockchain, mining transactions and setting them in blocks.
How transactions will be carried on MEW:
When you sign in and send your transaction through MyEthereum wallet and then it will be sent to MEW node for the transaction. And the transactions in MEW node will be directed into a pool of all signed transactions and then miners will pick transactions from the pool. The job of miners is they arrange the transactions in Blockchain and the transactions will be added to the chain. If a transaction is added to chain your transaction is permanent.
This process will go on the MyEthereum Wallet. For this process, miners will be paid through transaction fee ETH.
The concept of Gas in Ethereum:
When someone talks about gas. It will be either gas limit or gas price in cryptocurrency market. As mentioned above transaction fee is equal to multiple of gas limit and gas price. Let’s take a small instance for some more clarification on these two terms of gas limit and gas price.
Here Gas limit will be considered as the number of litres or units or gallons and Gas price will be considered as the cost of that gas limit in litres or gallons.
For example, a car takes of $2.50 price per one gallon and in the case of Ethereum, it will be 20 GWEI price per gas unit. To fill a car tank it takes 10 gallons and price will be $25. But in the case of Ethereum 21000 units of gas at 20 GWEI is equal to 0.00042 ETH. Then the total transaction fee will be 0.00042 Ether for that computation.
Sending tokens nearly take 50000 to 100000 gas. Therefore the total transaction fee will be 0.001 ETH to 0.002ETH. These are some examples to understand the approximate values of gas limit and gas price. Through this instance, we can understand the values of gas limit and gas price. Here GWEI is the price unit of gas.
The gas limit is the amount required to run or execute an operation in the contract code. Gas is the payment for the transaction but it will be changed into the ether. This ether will be paid to the miner for mining and be validating the transaction. For, example if anyone wants to execute five lines of code on Ethereum it will take five gas units.
A gas limit will be already defined on the Blockchain for how much amount of gas that code will be executed. So the value of gas limit is already defined we have to spend gas above the value that already assigned. If we spend less gas for computation it will never succeed and the transaction will be failed by showing out of gas error.
The unused gas will be refunded to you at the end of the transaction. There are some refunds also available by donating. For example, If you send 1 ETH to donation address through MyEther wallet by the spending of gas limit 400000 you will get back 400000-21000*. But if we send 1 ETH to a contract for the transaction and the transaction is failed due to some reasons like (Token creation period over) you will lose entire 400000 and nothing will get back. The standard gas limit is *21000 for transactions.
Gas price will decide the transaction process. If we pay less gas price then the transactions will be done slowly or if we pay more the transaction would be mined quickly.
If we compare, high rated transactions will be mined quickly rather than lower rates. Because miners always mine the high rated transactions. Miners always follow the simple strategy of sorting from the highest gas price to the lowest gas price transactions in the blocks. So it is better to pay the high gas price for the transaction to be mined quickly.
Normal times for mining:
40 GWEI gas price transaction will be placed in the next block directly.
20 GWEI gas price transaction will be placed within the next few blocks.
2 GWEI gas price transaction will be picked after some time.
These are the gas prices and the processing of transactions according to the price of the gas. GWEI is the unit of gas. Sometimes this price will be reached to 50 GWEI during token creation periods.
Why is ETH not used directly instead of gas price?
We know that the prices of cryptocurrency are different from day to day and there will be no constant rate for the price to operate the transaction. But on Ethereum Blockchain gas price will be fixed and constant to operate transactions and the market volatile rates do not show impact on the price of the gas unit.
For example, if we fix the ETH in the place of gas limits. The present-day value of ETH is $1000 and it will be difficult o invest. So gas limit prices will be used in this place by fixing constant values. By using this gas limits it will be easy to far away to volatile market rates.
By the above-mentioned data, we can understand how to use these gas limit and gas price in the cryptocurrency market.