A smart contract functionality needs to be 3 things: 

Deterministic: it gives the same output to a given input every single time.

Terminable: contracts by definition, must be capable of termination in a given time limit.

Isolated: a contract will be kept isolated in a sandbox to save the entire ecosystem from negative effects. 

Gas is a unit that measures the amount of computational effort that it will take to execute certain operations. Each and every line of code in an Ethereum smart contract requires a certain amount of gas to be executed.

Suppose you are going on a road trip:

• You go to the gas station & specify how much gas you want to fill up in your car.
• You get that gas-filled up in your car.
• You pay the gas station the amount of money you owe them for the gas.

In Ether world:

• Driving the car is the smart contract.
• The gas is well….gas.
• The gas station is your miner.
• The paid money is miner fees.

Incentivization. Like any proof-of-work peer-to-peer system, Ethereum is heavily dependent on the computational power of its miners. More miners, more computational power, more secure and fast the system.

To attract more miners Ether needs to make the system as profitable and alluring as possible for the miners. In Ethereum, there are two ways that miners can earn money:

• By mining blocks and getting block rewards.
• By running smart contracts. The gas system allows them to charge a certain fee for doing so.

If bitcoin is digital gold, Ethereum is alike the power grid, powering an ecosystem of worldwide decentralized applications. 

The gas is the metering system for the consumed power. And ETH is the currency used to pay for running the software and maintaining the network. 

To get an operation done in Ethereum, the sender of the transaction must specify a gas limit before they submit it to the network & a gas price: 

• The gas limit is the maximum amount of gas the sender is willing to pay for this transaction. If an operation has LOW gas, then the miners won’t even pick it up because it doesn’t have enough gas to finish the computation.
• The price is the amount of gas the sender is willing to pay. If an operation has LOW fees, then it might have just enough gas to cover it but still, the miners won’t be chomping at the bits to pick it up because an operation with low fees isn’t economically appealing for them.

If an operation runs out of gas, then it is reverted back to its original state like nothing actually happened, however, the operation generator must STILL pay the miners the fee for their computational costs and the operation gets added to the blockchain (even if it has not been executed).

When two numbers are added a million times in Ethereum it costs ~$26.55 in fees. On Amazon AWS system it costs $0.000000066.

This means that computation in Ethereum is 400 million times more expensive!

However:

• A well-written contract would likely move such computational complexity off-chain and deal more with updating state in the contract.
• A well-written contract would likely move such computational complexity off-chain and deal more with updating state in the contract.