Ethereum: Gas and Fee

1. Gas: 

• Unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. From August 5th, 2021 (after London update): better transaction fee estimation.

Total transaction fee = Gas units (limit) * (Base fee + Tip)

---> Miner receives the tip. Base fee is burned.

• Wallet providers will automatically set a recommended transaction fee.
• EIP-1559: Fee market change for ETH 1.0 chain  --> making gas fees more predictable.

(*) WHY DO GAS FEES EXIST?

• Prevent bad actors from spamming the network.
• Avoid accidental or hostile infinite loops

(*) WHAT IS GAS LIMIT? --> refers to the maximum amount of gas you are willing to consume on a transaction. A standard ETH transfer requires a gas limit of 21,000 units of gas.

(*) WHY CAN GAS FEES GET SO HIGH? --> Gas space is limited per block

(*) INITIATIVES TO REDUCE GAS COSTS

• Layer 2 scaling: https://ethereum.org/en/developers/docs/scaling/layer-2-rollups.
• New proof-of-stake model: Anyone with at least 32 ETH can stake them and become a validator responsible. who have less than 32 ETH can join staking pools.
• Tool: estimate gas: 
• https://etherscan.io/gastracker 
• https://chrome.google.com/webstore/detail/blocknative-eth-gas-estim/ablbagjepecncofimgjmdpnhnfjiecfm
• https://ethgasstation.info/

2. Block size

• Each block has a target size of 15 million gas.
• Size of blocks will increase or decrease in accordance with network demand (up to 2x the target block size). 

---> block size is greater than the target block size, the protocol will increase the base fee. decrease the base fee if the block size is less than the target block size. 

3. Base fee

• Every block has a base fee.
• When the block is mined this base fee is "burned", removing it from circulation.
• Increase by a maximum of 12.5%/ block  if the target block size is exceeded.

4. Priority fee (tips)

• Incentivize miners to include a transaction in the block. 
• Transactions that need to get preferentially executed --> higher tip.

5. Max fee (maxFeePerGas)

• For a transaction: Max fee must exceed the sum of the base fee and the tip. 
• Sender is refunded the difference between the max fee and the sum of the base fee and tip.

Refund = max fee - (base fee + priority fee)