diff --git a/README.md b/README.md
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--- a/README.md
+++ b/README.md
@@ -95,6 +95,10 @@ https://hub.docker.com/r/ethereum/evmone.
 docker run ethereum/evmone --vm.evm=libevmone.so
 ```
 
+## References
+
+1. [Efficient gas calculation algorithm for EVM](docs/efficient_gas_calculation_algorithm.md)
+
 ## Maintainer
 
 Paweł Bylica [@chfast]
diff --git a/docs/efficient_gas_calculation_algorithm.md b/docs/efficient_gas_calculation_algorithm.md
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+# Efficient gas calculation algorithm for EVM
+
+This article describes how to efficiently calculate gas and check stack requirements
+for Ethereum Virtual Machine (EVM) instructions.
+
+
+## Instructions metadata
+
+Let's start by defining some basic and universal instructions' parameters.
+
+1. Base gas cost.
+   
+   This is the static gas cost of instructions. Some instructions may have 
+   _additional_ cost depending on their operand values and/or the environment
+   — these have to be handled individually during the instruction execution.
+   The _final_ cost is never less than the _base_ cost.
+   
+2. Stack height requirement.
+
+   This is the minimum stack height (number of items on the stack) 
+   required prior to the instruction execution.
+   
+3. Stack height change.
+
+   This is difference of the stack height before and after the instruction 
+   execution. Can be negative if the instruction pops more items than pushes.
+   
+Examples:
+
+| opcode  | base gas cost | stack height requirement | stack height change |
+| ------- | ------------- | ------------------------ | ------------------- |
+| ADD     | 3             | 2                        | -1                  |
+| EXP     | 50            | 2                        | -1                  |
+| DUP4    | 3             | 4                        | 1                   |
+| SWAP1   | 3             | 2                        | 0                   |
+| ADDRESS | 2             | 0                        | 1                   |
+| CALL    | 700           | 7                        | -6                  |
+
+
+## Basic instruction blocks
+
+A _basic instruction block_ is a sequence of "straight-line" instructions 
+without jumps and jumpdests in the middle.
+Jumpdests are only allowed at the entry, jumps at the exit.
+Basic blocks are nodes in the _control flow graph_.
+See [Basic Block] in Wikipedia.
+
+In EVM there are simple rules to identify basic instruction block boundaries:
+
+1. A basic instruction block _starts_ right before:
+   - the first instruction in the code,
+   - `JUMPDEST` instruction.
+
+2. A basic instruction block _ends_ after the "terminator" instructions:
+   - `JUMP`,
+   - `JUMPI`,
+   - `STOP`,
+   - `RETURN`,
+   - `REVERT`,
+   - `SELFDESTRUCT`.
+
+A basic instruction block is a shortest sequence of instructions such that 
+a basic block starts before the first instruction and ends after the last.
+
+In some cases multiple of the above rules can apply to single basic instruction 
+block boundary.
+
+## Algorithm
+
+The algorithm for calculating gas and checking stack requirements pre-computes
+the values for basic instruction blocks and during execution the checks 
+are done only once per instruction block.
+
+### Collecting requirements for basic blocks
+
+For a basic block we need to collect the following information:
+
+- total **base gas cost** of all instructions,
+- the **stack height required** (the minimum stack height needed to execute all 
+  instructions in the block),
+- the **maximum stack height growth** relative to the stack height at block 
+  start.
+
+This is done as follows:
+
+1. Split code into basic blocks.
+2. For each basic block:
+
+```python
+class Instruction:
+    base_gas_cost = 0
+    stack_required = 0
+    stack_change = 0
+
+class BasicBlock:
+    base_gas_cost = 0
+    stack_required = 0
+    stack_max_growth = 0
+
+def collect_basic_block_requirements(basic_block):
+    stack_change = 0
+    for instruction in basic_block:
+        basic_block.base_gas_cost += instruction.base_gas_cost
+        
+        current_stack_required = instruction.stack_required - stack_change
+        basic_block.stack_required = max(basic_block.stack_required, current_stack_required)
+        
+        stack_change += instruction.stack_change
+        
+        basic_block.stack_max_growth = max(basic_block.stack_max_growth, stack_change)
+```
+
+### Checking basic block requirements
+
+During execution, before executing an instruction that starts a basic block,
+the basic block requirements must be checked.
+
+```python
+class ExecutionState:
+    gas_left = 0
+    stack = []
+
+def check_basic_block_requirements(state, basic_block):
+    state.gas_left -= basic_block.base_gas_cost
+    if state.gas_left < 0:
+        raise OutOfGas()
+    
+    if len(state.stack) < basic_block.stack_required:
+        raise StackUnderflow()
+    
+    if len(state.stack) + basic_block.stack_max_growth > 1024:
+        raise StackOverflow()
+```
+
+## Misc
+
+### EVM may terminate earlier
+
+Because requirements for a whole basic block are checked up front, the instructions
+that have observable external effects might not be executed although they would be
+executed if the gas counting would have been done per instruction.
+This is not a consensus issue because the execution terminates with a "hard" exception
+anyway (and all effects are reverted) but might produce unexpected traces 
+or terminate with a different exception type.
+
+### Current "gas left" value
+
+In EVMJIT additional instructions that begin a basic block are `GAS` and any of the _call_ instructions. This is because
+these instructions need to know the precise _gas left_ counter value. 
+However, in evmone this problem has been solved without additional blocks splitting 
+by attaching the correction value to the mentioned instructions.
+
+### Undefined instructions
+
+Undefined instructions have base gas cost 0 and not stack requirements.
+
+
+
+
+[Basic Block]: https://en.wikipedia.org/wiki/Basic_block
+
+
+