In order to execute transactions on the Ethereum network, users must pay a transaction fee
This fee has a gas cost proportional to the complexity of the transaction
For example, a simple transfer of ETH has a gas cost of XXX
Whereas a more complex transaction such as a swap on the Uniswap DEX has a gas cost of XXX
The gas, in turn, has a price denominated in ETH, and this price is dependent on overall gas demand
Since Ethereum transactions can be arbitrarily complex, and all transactions must be redundantly executed by all full nodes, the need to pay gas disincentivises frivolous transactions and ensures that the more economically valuable transactions are prioritised during times of high transaction demand
To make a transaction on the Ethereum network, you need to pay a transaction fee. This fee is measured in "gas," which represents the computing power needed to execute the transaction. The more complex a transaction, the higher its gas cost.
For instance, sending ETH from one person to another is simple, so it has a low gas cost. But a complex transaction, like swapping tokens on a decentralized exchange (DEX) such as Uniswap, requires more computational steps and has a much higher gas cost.
The price of gas is set in Ether (ETH) and fluctuates based on network demand. When many users are trying to make transactions at the same time, gas prices increase, making transactions more expensive. This system ensures that Ethereum’s network resources are appropriately valued over time through a market mechanism, such that when the network is busy with high demand, it encourages high value uses and discourages less necessary or time-sensitive transactions.
The market for gas helps allocate the network’s resources by forcing users to economise their transactions based on their complexity and value.