How Does Ethereum Work? (Part 2: Network Gas and Fees, Transactions, Blocks)
Ethereum, the second-largest cryptocurrency by market capitalization, has revolutionized the world of decentralized applications and smart contracts. In the first part of this series, we explored the fundamentals of Ethereum, including its blockchain structure and consensus mechanism. Now, let’s delve into the intricacies of the Ethereum network, understanding its concept of gas and fees, transaction processing, and the significance of blocks.
**Network Gas and Fees:**
In the Ethereum network, every operation consumes a certain amount of computational resources, which are measured in “gas.” Gas serves as a unit to quantify the computational work required to execute a specific operation or smart contract on the Ethereum Virtual Machine (EVM). The concept of gas ensures that the network remains stable and secure by preventing malicious actors from exploiting the system.
Each transaction initiated on the Ethereum blockchain requires a certain amount of gas to be processed. The gas cost varies depending on the complexity of the transaction and the computational resources it consumes. Simple transactions, like sending ether (the native cryptocurrency of Ethereum) from one address to another, require relatively low gas. On the other hand, executing more complex smart contracts may demand significantly higher gas fees.
Users must pay for the gas in ether, and the transaction’s sender decides the gas price, which represents the amount of ether they are willing to pay for each unit of gas. Miners, the network participants responsible for processing transactions and creating new blocks, prioritize transactions with higher gas prices, as they can earn more by including them in a block.
When a user initiates a transaction on the Ethereum network, it is broadcast to the peer-to-peer network, where nodes receive and validate it. After validation, the transaction is placed in the “mempool,” a temporary storage area where pending transactions await inclusion in a block.
Miners continually pick transactions from the mempool based on their gas prices and start mining new blocks. Mining is the process of solving a complex mathematical puzzle, with the first miner to solve it being able to propose the next block to the network. This process is called Proof-of-Work (PoW).
Once a miner successfully mines a block, it includes the selected transactions from the mempool, along with some additional data, into the new block. The miner then broadcasts the new block to the network, and other nodes verify its validity and add it to their copy of the blockchain.
**Blocks and Confirmations:**
Blocks in the Ethereum blockchain serve as containers for multiple transactions. They are linked together, forming a chronological chain of blocks. Each block contains a reference to the previous block, creating a secure and tamper-resistant ledger.
When a new block is added to the blockchain, the transactions within it are considered confirmed. However, it’s essential to note that the concept of “confirmation” in Ethereum is different from traditional financial systems. In Ethereum, a transaction is generally considered irreversible after a few block confirmations (usually six confirmations), as the chances of a blockchain reorganization or “fork” become increasingly unlikely.
Blockchain forks can occur when multiple miners find valid blocks simultaneously, causing a temporary divergence in the chain. However, the longest chain with the most accumulated computational work (the chain with the most blocks) is considered the “canonical chain,” and other shorter chains are discarded by the network.
Understanding how Ethereum works is crucial for anyone interested in using or developing decentralized applications on the platform. Gas and fees are integral to incentivizing miners to process transactions efficiently, while the mining process and blocks ensure the security and immutability of the Ethereum blockchain.
As Ethereum continues to evolve, it is likely to undergo significant changes, such as transitioning from Proof-of-Work to Proof-of-Stake (PoS) consensus mechanism, improving scalability, and enhancing its capabilities. With ongoing development and community support, Ethereum remains at the forefront of the blockchain revolution, driving innovation and transforming industries across the globe.