<p>Gas fees are transaction fees on the <a href="/NewSite/encyclopedia/ethereum/" class="ency-link">Ethereum</a> network, paid in Ether (ETH) to facilitate network operations. They are a fundamental aspect of Ethereum's functionality, enabling the network to process transactions and smart contracts.</p>

<h2>How It Works</h2>
<p>Ethereum uses a unique pricing mechanism called "gas" to manage its network resources. Each operation on the Ethereum network, such as sending ETH or executing a smart contract, consumes a certain amount of gas. The gas limit, a parameter set by the transaction sender, determines the maximum amount of gas that can be consumed by a transaction. Gas prices, expressed in Gwei (a denomination of ETH), fluctuate based on network demand. The total gas fee for a transaction is calculated as follows:</p>
<p><strong>Gas Fee = Gas Used × Gas Price</strong></p>
<p>For example, if a transaction uses 21,000 gas and the current gas price is 20 Gwei, the gas fee would be 420,000 Gwei, or 0.00042 ETH.</p>

<h2>Why It Matters</h2>
<p>Gas fees serve several crucial purposes:</p>
<ul>
  <li><strong>Network Security:</strong> Gas fees act as a deterrent against spam and DDoS attacks, ensuring that only transactions that contribute value to the network are processed.</li>
  <li><strong>Resource Allocation:</strong> Gas fees help allocate network resources efficiently. Higher gas prices prioritize transactions, allowing users to pay more to have their transactions processed faster.</li>
  <li><strong>Economic Incentive:</strong> Miners and validators on the Ethereum network are rewarded with gas fees, providing an economic incentive for securing the network.</li>
  <li><strong>Scalability and Layer 2 Solutions:</strong> High gas fees can hinder Ethereum's scalability. As a result, many projects are developing layer 2 solutions (e.g., Plasma, Optimistic Rollups, ZK-Rollups) to reduce gas fees and improve transaction processing speeds.</li>
</ul>