Otherwise known as Ethereum, Gas is simply a reference to the fees you will have to pay when doing transactions on the theory blockchain. These are minuscule portions of a cryptocurrency, referred to as ETH or ether, that are used to fund transactions through the Ethereum virtual machine. All of this is decentralized, allowing people to self execute transactions in a secure manner. However, the fluctuations in the price of gas can be quite outrageous. Many people wonder why it is so low or so high at certain times of the day. Here is a quick overview of how gas prices work in the cryptocurrency world.

Supply And Demand Causes Price Changes

As a general rule, when there is low demand, and high supply for something for sale on the blockchain, the cost of gas is going to be lower. However, if there is high demand, yet very low supply, the cost of gas will be much higher. Gas is measured in incremental portions of cryptocurrency referred to as gwei. Keep in mind that this is different from how cryptocurrency itself is valued. This is not the same as looking at either token when determining their overall value.

Understanding How Gas In Ethereum Works

The reason that you are paying gas when you are doing transactions is to compensate for the energy that is used by the servers that are allowing these transactions to occur. It is also paid for the validation and processing of the transactions that will occur on the blockchain Ethereum platform. There are some limitations to the amount of gas you can spend which is referred to as a gas limit. This can be different for every different transaction. The higher the limit, the more work must be done to complete the transaction.

The Role That Miners Play

The amount of gas that you paid for anything on the blockchain network is determined by miners. They are able to set the price, based on supply and demand, using a superfast computer that can do all of the computations. The process itself involves the use of what are called smart contracts that will keep track of every transaction. Since it is on the blockchain, there will be no connection between each person that is part of the transaction. By understanding this, you can easily see why supply, demand, and these computations can lead to the price of gas.

This brief overview of how gas prices can fluctuate on the Ethereum network will explain why you may pay substantially more at certain times of the day. When demand is high, and the supply is low, you will pay higher prices for every transaction. Likewise, if there is low demand and a very high supply, the price of transactions will be minimal by comparison. Although this is similar to the way transactions occur in the real world, it has its own language, set of definitions, and way of processing the prices that are charged for these services.