How are Ethereum transaction fees calculated?

Ethereum transaction fees

Ethereum transaction fees work differently than Bitcoin. The transaction fee takes into account the amount of computing power, called gas, required to execute a transaction. Gas price is measured in ether (ETH), the network's native token, and can vary.

The gas amount due for a particular transaction may remain the same, but the gas price may rise or fall. Gas price is directly related to network traffic. If you pay a higher gas price, miners will likely prioritize your transaction.

How are Ethereum transaction fees calculated?

The total gas fee is a price that includes costs plus an incentive to confirm your transaction. But you also need to consider the gas limit, which determines the maximum price to be paid for a transaction or task.

In other words, gas cost is the amount of work required. Gas price is the price paid "per hour" for this job. The relationship between the two and the gas limit determines the total fee to be paid for Ethereum transactions or smart contract usage.

For example, if a particular transaction costs 21,000 gas and the gas price is 71 Gwei, the transaction fee would be 1,491,000 Gwei or 0.001491 ETH.

Gas fees are expected to decrease as Ethereum moves to the Proof of Stake model (see Casper). The amount of gas required to confirm a transaction will decrease as the network will need much less computational power to validate transactions. However, network traffic may still affect transaction fees, as validators prioritize transactions that pay higher.