Recently, a friend asked me what Gas on Ethereum actually is. To be honest, there are many different explanations online, and beginners can easily get confused. So today, I’ll explain it thoroughly for you.

It’s actually very simple—just remember one formula: Transaction Fee = Consumption × Unit Price. Just like driving from point A to point B requires gasoline, executing any operation on the Ethereum network requires Gas.

Let’s start with an example. Suppose you want to send a token, which consumes 21,000 units of Gas, and the price per Gas unit is 100 gwei. Then the transaction fee would be: 21,000 × 100 = 2,100,000 gwei. See? It’s that simple.

So, what is Gas? Gas translates to fuel. In Ethereum, Gas is a term that represents the fuel needed to perform a certain operation. You often hear people say “Gas has skyrocketed to 200,” which actually refers to the Gas price, not the consumption or the total fee.

Next, let’s talk about Gas Limit. This is the maximum amount of Gas you’re willing to pay for a transaction. For example, the system might set a default Gas Limit of 50,000, but if the actual consumption is only 21,000, the remaining 29,000 will be automatically refunded to you. Conversely, if the actual consumption exceeds your set limit, the transaction will fail, and the Gas fee already paid will not be refunded. So, never lower your Gas Limit just to save money, as that can backfire.

Now, about Gas Price—that’s the unit price of Gas. It’s usually expressed in Gwei because using ETH directly involves a lot of zeros and looks cumbersome. 1 Gwei = 0.000000001 ETH. Using Gwei makes it much easier to read and understand.

The Gas fee is the actual fee you pay, calculated as: Gas Fee = Gas Limit × Gas Price. For example, if Gas Limit is 21,000 and Gas Price is 63.97 gwei, then the fee is 21,000 × 63.97 = 1,343,454 gwei, which is roughly 0.00134 ETH.

Since the London upgrade in August 2021, the structure of Gas Price changed. Now, it consists of two parts: the base fee and the priority fee. The base fee fluctuates in real-time based on network congestion, while the priority fee is an optional tip you add to prioritize your transaction. This is similar to tipping a driver to get faster service. The max fee equals the base fee plus the priority fee, similar to the previous Gas price before the upgrade.

Why are Gas fees sometimes so high? Because Ethereum’s block space is limited. When many people are trying to get their transactions included—like during a popular NFT drop—competition drives Gas prices sharply higher. The smartest move is to avoid transacting during peak congestion and wait until the network is less busy.

To reduce Gas costs, I recommend the following: first, always check the current Gas price before operating; second, if you’re not in a hurry, try to do transactions in the afternoon or evening when Gas prices tend to be more stable; third, consider using Layer 2 solutions like Polygon or sidechains, which are much cheaper. Some jokingly call Polygon the “beggar chain,” and it’s especially suitable for airdrops and small interactions.

Ultimately, if you don’t understand what Gas is and how to calculate it, you’re likely to lose out on the Ethereum network. So, always check the Gas price before making any transaction to avoid unnecessary losses.