DEFINITION of Gas Price (Ethereum)

Gas price refers to an internal price that is paid for running a transaction or a contract on the Ethereum network.

BREAKING DOWN Gas Price (Ethereum)

The concept of using a separate unit (gas price) instead of the default token of the network (ether), allows a decoupling of the two. It helps to separate out the price of computation from the price of the ether token in the open market. 

For instance, imagine that miners are demanding 1/10,000 ether for a unit of mining work. If they later wish to increase the mining fees by 25%, it would amount to 1/8,000 ether. This increase in mining price will start impacting the price of ether in fiat currencies like U.S. dollars, which may not be the ideal way for an economy to work.

Instead, if the mining work is quoted in a separate unit, like 1 gas price unit, and that is set to be worth 1/10,000 ether, then the increase (or decrease) can be handled in terms of changing the gas price unit. For the same 25% change, the miners will get the same benefit if the gas price unit is changed to be worth 1/8,000. That keeps ether market prices independent of the units required for network computational use. (For more, see What Is Ether? Is It the Same as Ethereum?)