What does gas do with crypto?

What's the connection between gas and cryptocurrency?

 

Many of us have heard the buzzwords cryptocurrency and blockchain thrown around without fully understanding what they mean or why they are such a big deal.

In fact, it can be hard to understand how one even relates to the other when you hear about the latest tech bubble in Silicon Valley. So what does gas have to do with cryptocurrency? The answer lies in both the similarities and differences between these two phenomena.

 

Why Gas Matters

In Ethereum, transactions require a small amount of computational work (called gas) to execute. The more complex or larger your transaction is, such as sending over Ether to a friend, that transaction will require more gas to process than sending a small amount of Ether for an exchange.

When you pay for something with Ethereum, you must pay in gas using ether; it’s just like paying with U.S. dollars when you go shopping – except that, unlike cash, you only spend what you need (unlike fiat currencies like USD which can be inflated by central banks).

Just because someone accepts your payment doesn’t mean they have to accept all types of payments or even send anything back if they don’t want to.

 

How Gas Works

Gas is a metaphor, said Peter Vessenes, chairman of New Alchemy, a blockchain investment and development company. He was referring to Ethereum's internal transaction pricing mechanism called gas.

Every time you make a transaction in Ethereum (send someone ETH, set up a contract, etc.), you have to pay for that computation. Think of it like paying per mile when you're driving.

There are different types of transactions (big trucks use more gas than Priuses), but they all get logged in a public ledger that cannot be altered or removed. This system creates trust because everyone can see what happened and verify that no one cheated.

It also prevents by making transactions costly, so people won't waste their money on frivolous or malicious acts. If there were no costs, Vessenes explained, there would be nothing stopping me from sending 1 million emails.

But we don't want anyone sending 1 million emails because it will clog our inboxes—and blockchains work similarly. They prevent bad actors from doing things like double spending money—when someone spends their digital assets twice by sending them to two different recipients at once—because every action has a cost associated with it.

 

Why Ether Gas Matters for ETH Token Holders

Ether Gas is a metric used to measure how much fuel is needed for any Ethereum transaction, whether it’s sending money or deploying smart contracts.

Think of it as an important component of every Ethereum transaction. Now, there are two things you should keep in mind about Ether Gas:

1) Every action requires Ether Gas to execute.

2) The more complicated an action (such as placing a bet on Augur), or completing a set of actions (such as transferring tokens using ERC-20 technology), the more Ether Gas you need to execute it.

This holds true regardless of whether your actions involve executing a smart contract or not; all transactions with ETH involve paying some amount of Ether Gas. So, why does Ether Gas matter? Well, because it has real monetary value.

You can pay someone else in ETH for their work by setting aside some amount of Ether Gas worth their time/effort/skillset, thus incentivizing them to help you out.

And, because Ether Gas is a finite resource that must be paid for each transaction that takes place on Ethereum, its value fluctuates based on demand and supply—similarly to how oil prices rise when demand increases while supplies decrease over time.

So what does all of that mean for token holders?

 

Vitalik Buterin on Ethereum Scalability Challenges

Back in 2016, Vitalik Buterin, co-founder of Ethereum, posed a question to the development community. He asked: How do we scale Ethereum?

This was at a time when many were claiming that Ethereum wouldn't scale to sufficient levels for it to become more than just an experiment with marginal use cases.

Rather than providing suggestions or answers, Vitalik instead posed a series of questions aimed at understanding how developers were thinking about potential solutions.

It is clear from his post that Buterin had little in mind as far as how exactly scaling would occur - he wanted ideas from everyone on how Ethereum could scale to meet demand. As such, it might be easy to see why some have argued that Buterin is not only one of Ethereum's most important minds but also one of its most underrated.

The reason is that while he doesn't always come up with solutions himself, what he does do is provide frameworks for others to follow so they can solve problems themselves.

And perhaps that is one of his greatest strengths; by setting out parameters within which problems can be solved, other people are able to work on those issues and come up with novel ways in which they can be resolved. Without further ado then, let’s get into what happened next...

Conclusion

Cryptocurrency enables a number of applications beyond simply digital money. Take Ethereum, for example, which offers two major functionalities: As a decentralized computational platform, where all computations are paid in fuel, and as an alternative to bitcoin’s implementation of censorship-resistant digital cash.

Both are valuable on their own merits, but one can be more immediately compelling to an average person than another.

I’m guessing that if you’re reading Coindesk for information about cryptocurrencies today, it’s probably because you want to know how investing in these assets can make you money.

But when we begin looking at non-monetary applications of blockchain technology – then we get really excited!

As developers, investors, and entrepreneurs, we have to ask ourselves what potential use cases will inspire people who aren’t necessarily interested in finance or cryptography to take interest in crypto?

 What is there left to build on top of existing blockchains like Bitcoin or Ethereum? The answer is both simple and complex: almost anything.

As Vitalik Buterin has said many times before (and I agree with him), blockchain tech isn't some magical thing that automatically makes things better just because it's there. And he’s right.

There are many technologies out there already doing amazing things without blockchain – but they could do even better with it!