With a market cap of $89 million, Ethereum is by far the second largest cryptocurrency in existence. Its huge following and many uses make for an immense amount of transactions per day. This guide is designed to help explain how Ethereum transactions work as well as to give some insight into sending Ether efficiently.
Sending to an Address
To send Ether (ETH) you are going to need an Ethereum address. They look something like this: 0xfb33644e93693be4cabfa7952979c3027eb00645. You can easily get one by opening a MyEtherWallet. The recipient also needs an Ethereum address. The best way to figure out how much you want to send is to use a live currency converter such as Cryptonator. You then need to choose a reasonable transaction fee and send it off. Transactions typically take around 10 minutes to get confirmed on the blockchain.
Before sending your transaction, you need to choose a fee. Higher fees make for faster transactions, and lower fees are naturally cheaper but take longer. The fee pays for miners to put your transaction on the blockchain. You are essentially paying for their services.
To understand transaction fees, you need to understand Gas. Gas is just Ether that is used to pay for transactions. It is the fuel needed to send payments, and it is usually measured in Gwei, which is an extremely small amount of Ether (1X10-9 to be exact). To put it into perspective, 1 Gwei = 0.000000001 Ether (ETH).
Transaction fees are made up of two elements: Gas limit and Gas price. The Gas limit is the highest amount of Gas that you are willing to spend on a transaction. It is measured in units. A common Gas limit is 21000 units (the default for most Ethereum transactions).
Gas price is the amount of Ether (Gwei) that you will pay for each unit in the Gas limit. The best way to understand this is to see an example. If you are sending off a standard transaction, the fee you would pay is 21000 (Gas limit) x 25 Gwei (Gas price), which equals 525000 Gwei (or 0.000525 Ether).
Using a Higher Fee
While the standard transaction fee is 525000 Gwei, there will be times when a higher one is needed – whenever there is an influx of activity on the Ethereum network, for example. This happened most recently when the CryptoKitties game gained popularity.
Times of high congestion require more fees because miners need to use more computing power. Increasing the Gas price to 50 Gwei usually solves this problem, but the most efficient way of figuring out the right price is through EthGasStation as it updates regularly.
Increasing the gas price is also useful for making fast transactions. Sometimes, people will use 100 Gwei when they need to send some money off quickly. These transactions can take less than a couple of minutes to complete! Lowering the Gas price is useful for when you are making low priority transactions. Setting it to 10 Gwei could make a transaction take over 12 hours. It’s important to note, any unused Gas for a transaction will be returned to your wallet, meaning you can set higher limits without having to worry about losing much money.
Sending ERC-20 Tokens
Transaction fees for ERC-20 tokens are the same as for sending Ether, with a few exceptions. ERC-20 tokens often have predetermined, unchangeable Gas limits, but you still get to choose the Gas price. A higher price will still mean a faster transaction. Note that ERC-20 tokens can be held in a wallet that doesn’t contain any Ether, but to send them you would still need Ether for Gas.
Hopefully, this has been of some assistance to you. If you would like to learn more about the sometimes-crazy world of crypto, you might want to dip into our lively Telegram channel, where you’ll learn a whole lot more.
Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.