What is the difference between Gas Price and Gas Limit?

Alright, no problem. We'll use a road trip analogy to help you understand these two concepts clearly.

Gas Price and Gas Limit: A Simple Analogy of Fueling Your Car

Doing anything on Ethereum (like sending transactions or buying/selling NFTs) is like driving a car from point A to point B. The Gas Fee is the fuel cost you need to pay for this trip. This total fuel cost is determined by two things: Gas Limit and Gas Price.

1. Gas Limit (Fuel Tank Capacity / Fueling Cap)

Simply put: The maximum amount of fuel you're willing to allocate for this transaction.

You can imagine Gas Limit as telling the gas station attendant: "Fill 'er up, but no more than 50 liters!"

This is an upper limit: It specifies the maximum amount of computational resources (Gas) your transaction can consume. Each step of an operation, such as a transfer or executing a smart contract, requires a certain amount of Gas.
What happens if you set it too high?: It's fine. For example, if you set a 50-liter cap (Gas Limit), but your car only used 30 liters to reach its destination (actual Gas consumed). The remaining 20 liters of fuel are still in your tank, and you won't pay for those 20 liters. Similarly, on Ethereum, you only pay for the actual Gas consumed, and any excess will be "refunded" to you. This is why people generally set the Gas Limit slightly higher than the estimated value, just in case.
What happens if you set it too low?: This is a big problem! If your car runs out of fuel halfway (Gas exhausted), it stops, and you won't reach your destination. On Ethereum, this means the transaction fails ("Out of Gas" error). The worst part is, even though the transaction failed, you still have to pay for the fuel (Gas) consumed for the distance already traveled, and this money will not be refunded to you! This is because miners have already expended computational resources for your transaction.

In summary: Gas Limit acts as a safety cap, preventing your transaction from becoming a bottomless pit (e.g., due to a contract bug) and draining all your funds.

2. Gas Price (Unit Price of Fuel)

Simply put: How much you are willing to pay for each liter of fuel.

You can imagine Gas Price as the price of fuel at the gas station. However, this price isn't fixed; it's you who makes the offer.

This is a bidding process: The Ethereum network is like a congested highway, and miners (or validators) are like toll booth attendants. They prioritize vehicles that offer a higher price. The higher Gas Price you offer, the more you're telling the miners: "I'll pay more, process mine first!" Your transaction will then be included in a block and confirmed faster.
What happens if you set it too high?: Your transaction will be very fast, almost instantly confirmed. It's like taking the VIP lane during rush hour, but the trade-off is that your total fuel cost will be higher.
What happens if you set it too low?: Miners will feel it's not profitable enough and will leave your transaction aside, prioritizing those with higher bids. Your transaction might get stuck for a long time – minutes, hours, or even indefinitely.

In summary: Gas Price determines the speed at which your transaction is processed. The more congested the network, the higher the average Gas Price.

In Summary: How is the Total Fee Calculated?

Remember this simple formula:

Total Transaction Fee = Actual Gas Consumed × Gas Price (Your Bid)

Applying the car analogy:

Total Fuel Cost = Fuel Consumed for Actual Distance Driven (liters) × Price You're Willing to Pay Per Liter of Fuel

Let's take an example:

You initiate a standard ETH transfer, which typically consumes a fixed 21,000 units of Gas.
To be safe, you set the Gas Limit to 30,000. (The cap is sufficient)
At that time, the network was a bit busy, and you wanted it to be fast, so you set the Gas Price to 20 Gwei. (Gwei is a tiny unit of denomination in Ethereum, like the relationship between "cents" and "dollars")

Final result:

The transaction is successful because it only used 21,000 Gas, which is below your 30,000 limit.
Your actual cost is: 21,000 (actual consumed) * 20 Gwei (unit price) = 420,000 Gwei.

As you can see, the total fee is calculated using the 21,000 Gas actually consumed, not the 30,000 Gas Limit you set.

Isn't that easy to understand? One controls how much you're willing to spend at most, the other controls the processing speed, and multiplying them together gives you your ultimate total cost.