The world of cryptocurrency and blockchain platforms can seem pretty complicated when you’re first starting out, especially when you encounter a seemingly endless string of crypto slang. But before you fall down the slang rabbit hole, it’s essential to know the basics.

The term “Gwei” is at the heart of many financial decisions in the crypto world. But what is Gwei, and how does it impact your experience with digital currencies and trading on a blockchain platform? Keep reading to find out.

Gwei Explained

Gwei is a common denomination of Ether (ETH), the native currency of the Ethereum blockchain. It’s a portmanteau of the words “giga” and “wei”, which are both crypto denominations. 

A single Gwei is worth a healthy 0.000000001 ETH, which might seem insignificant but is actually essential to all transactions. This tiny denomination helps quantify transaction fees and gas costs.

Other ETH Denominations

Many other crypto denominations outside of Gwei are used to quantify a simple ETH transfer. Here’s a handy chart so you can easily get acquainted with ETH as a native currency:

Every denomination has another moniker like lovelace or shannon, in the same way that fiat currencies have former presidents and significant historical figures on their bills.

Here are the namesakes of the various ETH denominations:

• Wei (wei) – Wei Dai: Wei Dai is the creator of B-money, the predecessor to Bitcoin. In short, he was the brain behind most cryptocurrency concepts.

• Kwei (cabbage) – Charles Babbage: Charles Babbage was a multi-talented mechanical engineer credited with designing the first automatic computing engines.

• Mwei (lovelace) – Ada Lovelace: Ada Lovelace was a writer and mathematician who wrote and published the first algorithms.

• Gwei (shannon) Claude E. Shannon: Claude Shannon, was an American mathematician known for laying the foundations of Information Theory.

• Twei (szabo) – Nick Szabo: Nick Szabo is known for his digital contracts and currency research, which paved the way for today’s smart contracts and cryptocurrency.

• Pwei (finney) – Hal Finney: Hal Finney is one of the early developers of Bitcoin. Crypto lore says he’s the first person ever to receive a Bitcoin from Satoshi Nakamoto.

• Ether (buterin) – Vitalik Buterin: A modern founding father, Vtalik Buterin created Ethereum.

How It Works

Gwei represents a tiny fraction of Ether. This is necessary because many cryptocurrencies have ballooned in value, making these small denominations necessary when converting over to a fiat currency. Additionally, with denominations like Gwei, more specific and complicated transactions can be made without complex calculations.

That said, currency exchange and conversion isn’t Gwei’s primary purpose. Instead, it sees the most use when quantifying gas prices. Since each ETH transaction requires power, miners and validators are paid “gas fees” (in Gwei) to compensate for the computing energy used during the process.

Is It Necessary For All Transaction Types?

Because all simple and complex transactions made on the Ethereum blockchain require gas fees for completion, Gwei is a staple. But it can go beyond just trading ETH – any ERC-20 token or currency traded on the Ethereum blockchain also requires Gwei.

Calculating The Cost Of Transactions In Gwei

As mentioned earlier, all ETH transactions require certain amounts of gas to be logged on the blockchain. These gas prices are referred to as “base Gwei”.

The demand for block space determines how much a base unit will cost. That means transactions made during a busy time will cost more during off-peak hours. 

There are various computational resources available on the web that’ll figure out the current gas cost for you. Once you’ve ascertained the base gas price, you can quickly figure out your total transaction cost with this formula: 

Gas Units (Gas Limit) x (Base Gwei + Tip)

Users can also convert their total transaction costs into USD with the following formula: 

Total Gwei x Ethereum price x 0.000000001

This way, you’ll always know how much you’re spending in tangible fiat currency.

Final Thoughts On Gwei

While learning about cryptocurrency and trading can be pretty complicated, familiarizing yourself with specific concepts will pave the way to cryptographic fluency. Gwei is one such concept because of how essential it is to every transaction on the Ethereum blockchain. 

Learning about Gwei usually means that newcomers are also introduced to the idea of gas prices and the volatile nature of cryptocurrency, making it a perfect place to start.