If you have been interacting on the Ethereum blockchain, chances are you would have seen the term Gwei.
Gwei is a term that is widely used by the Ethereum community and it is something even seasoned Ethereum users have a hard time explaining.
What is Gwei?
Gwei is a combination of the words “Giga” and “Wei”. It is basically a denomination of the cryptocurrency Ether, and is commonly used to measure the cost of gas for transacting on the Ethereum network.
A Gwei is equivalent to 0.000000001 ETH or is 1 billionth of an Ether.
Gwei also goes by other names like Shannon or Nanoether. It is named Shannon after the late Claude Elwood Shannon, an American cryptographer, who is also known as “the father of information theory”.
How to calculate transaction fees in Gwei
Base Gwei is the minimum amount of Gwei required to include the transaction into the Ethereum blockchain. Base Gwei is determined by the demand for a transaction to be included and will increase or decrease based on the number of users interacting with the blockchain.
You can use this formula to calculate the total Gwei required: Gas Units (Limit) x (Base Gwei + Tip)
To illustrate this example, let’s say the estimated gas limit is 65,000 and I want to do an ERC-20 token transfer to another wallet.
Total Gwei = 65,000 Gwei x ( 118 Gwei + 0 ) = 7,670,000 Gwei
I would have to pay a total of 7,670,000 Gwei to send the ERC-20 token to another wallet.
Converting Gwei into USD
How do you convert Gwei into USD?
To convert Gwei into USD you need to know:
- Total Gwei
- The current Ethereum price
The formula to convert Gwei to USD is: Gwei x Ethereum price x 0.000000001. Let’s assume that 1 ETH is USD$3,000.
7,670,000 Gwei x USD$3,000 x 0.000000001 = USD$23.01
The simpler way is to just use the Gwei to USD Calculator for a rough gauge on the current gas price. (The calculator set the gas limit at 200,000)
Do note that more complex transactions would require more gas fees. A simple transfer of ERC20 token to another wallet would incur a significantly lower gas fee than doing a token swap on a decentralised exchange.
Why does gas cost so much?
There are two main reasons why gas fees cost so much:
- Increasing price of Ether
- High traffic on the network
As the gas fees are denominated in Gwei, the increasing price of Ether would naturally increase the amount users have to pay for gas.
Another reason is because of the increase in traffic on the Ethereum network. With over 3,000 decentralised applications running on the network, the base Gwei would increase to accommodate the rising demand for the blockchain.
One tip to spend less on gas is to pick the right time to do a transaction. As the gas price is based on the supply and demand of the blockchain, you can transact at a time when fewer users are using the blockchain.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]