Ethereum gas fees confuse almost every new user. Why did a simple swap cost more than the tokens you swapped? Why did a failed transaction still cost money? This guide explains how gas works on Ethereum, using the protocol’s own logic, so you can predict costs before you sign.
What gas is
Gas is the unit of work inside the Ethereum Virtual Machine (EVM). Every operation, such as adding numbers, storing data or calling another contract, has a fixed gas cost. That cost is meant to reflect roughly how much computation and storage the network’s nodes have to provide. Simple ETH transfers cost 21,000 gas. Complex DeFi actions touch many contracts and cost far more.
Gas prices are usually quoted in gwei. One gwei is 0.000000001 ETH, and the name comes from “giga-wei”, after computer engineer Wei Dai.
Gas limit and gas price
When you send a transaction, you set two values:
- Gas limit: the most gas you are willing to use.
- Gas price: how much ETH you will pay per unit of gas.
Your wallet reserves gas limit × gas price from your balance at the start. Whatever gas is not used is refunded at the end. If the transaction runs out of gas partway, it is reverted. You still pay for the gas already used, and only the unused part comes back. That is why a failed transaction still costs a fee.
Base fee and tip (EIP-1559)
The London upgrade on 5 August 2021 introduced EIP-1559, a change meant to make fees less volatile. Since then, every fee has two parts:
- Base fee: set by the protocol for each block and burned, meaning it is removed from supply.
- Priority fee (tip): paid to the block proposer. A higher tip gives proposers more reason to include your transaction quickly.
A transaction can only be included in a block whose base fee is at or below the price you offered. If the network gets busy and the base fee rises above your offer, your transaction waits. Because the base fee is burned, ether’s inflation is lower, and there can even be periods of deflation.
Why fees spike
Block space is limited. Wikipedia puts Ethereum’s maximum theoretical throughput at about 238 transactions per second as of December 2025, based on a 60M gas limit, 12-second blocks and 21k gas per transfer. Real throughput is much lower because large contract calls use more gas. When demand rises, for example during a token launch or a market crash, users bid against each other for that space.
Layer 2: the main way to pay less
Layer 2 networks are separate chains that extend Ethereum and inherit its security. They come in two main types, optimistic rollups and zero-knowledge rollups, and some can handle thousands of transactions per second at lower fees. The trade-off is moving funds through bridges, which brings its own costs and failure modes. See our guide to bridges, slippage and fees.
Practical tips
- Read the full fee estimate in your wallet before signing, not just the token amount.
- Do not set the gas limit too low to save money, because a reverted transaction still costs gas.
- Use a modest tip unless you really need speed.
- Group your actions and avoid peak hours.
- Check approval transactions carefully. They cost gas and can expose your tokens, as explained in signing safely.
A worked example
Say you send ETH to a friend. The transfer uses exactly 21,000 gas. If the base fee is 10 gwei and you add a 1 gwei tip, you pay 21,000 × 11 gwei = 231,000 gwei, or 0.000231 ETH. Of that, 210,000 gwei is burned and 21,000 gwei goes to the block proposer. A token swap that uses ten times more gas costs ten times more at the same prices. That is why, when the network is busy, complex DeFi actions get expensive first. Wikipedia also notes that average Ethereum throughput stayed at about 25 transactions per second after the move to proof of stake, so the switch did not make fees cheaper.
Crypto risk note: Crypto-assets are highly volatile and largely unprotected. You can lose all the money you put in. This article is general education, not financial, tax or legal advice. Never invest more than you can afford to lose.