For years, one of the most debated topics in the world of blockchain has been the issue of gas fees on Ethereum. Proponents argue that these fees are too high, while opponents claim that they are necessary for a secure and functioning network. However, recent developments have led to a significant reduction in gas fees, with some even suggesting that they have become excessively low.
The Modular Scaling Philosophy
At the heart of this debate is the concept of modular scaling, which posits that blockchain networks are not designed to process activity but rather to provide access to a scarce resource: secure block space. This idea is based on the notion that blockchains operate similarly to other markets for scarce assets, such as land, oil, or electricity.
In these markets, resources are continuously auctioned off to the highest bidder, and the winner is whoever needs it most. In the case of blockchain networks, this would typically be a whale or a wholesale buyer, such as a layer 2 solution.
Monolithic Chains: The Wrong Vision for Crypto
On the other hand, monolithic chains are based on a network philosophy that seeks to provide equal service to all users. However, this approach is inherently flawed, as blockchains are not just networks like the internet. When financial transactions are delayed, it can have catastrophic consequences.
In contrast, monolithic chains attempt to apply the same pricing strategy to all users, regardless of their specific needs. This would be akin to charging the same rate for a postcard and an overnight package at the post office – it simply wouldn’t work.
The Reality of Gas Fees in 2024
One recent example that has sparked debate is the sudden spike in gas fees on Ethereum during the August 4-5 market crash. At first glance, this might seem to support the argument that gas fees are too high. However, a closer examination reveals that everything worked as intended.
The periodic spikes in gas fees during peak demand are a natural consequence of a wholesale market operating at maximum capacity. This is how markets for scarce assets typically behave, and it’s essential to understand that these fluctuations are a necessary part of the system.
How Gas Fees Work on Modular Chains
On modular chains, users who require high-security transactions, such as large trades, can still opt for the base layer. Meanwhile, wholesale providers like rollups operate at a different level, where short-term spikes in gas fees have less impact.
This tiered pricing model is similar to how airlines and gas stations purchase oil products – when prices are low, they benefit from a larger profit margin; when prices spike, they absorb most of it or possibly operate at a loss. If high prices persist, they adjust their own prices accordingly.
The Role of Rollups in the Gas Fee Market
Rollup gas fees also spiked during the August 4-5 crash, which might seem to contradict our earlier assertion that modular chains work as intended. However, this anomaly can be attributed to the relative immaturity of the rollup fee market.
As competition increases and layer 2 solutions evolve, we can expect rollups to compete on price not just in absolute terms but also in terms of volatility. Some will even advertise themselves based on their promise of stable prices.
Abstracting Away Gas Fees for End-Users
I firmly believe that most gas fees will eventually be abstracted away from end-users, particularly retail ones. We’re already seeing this with some projects like Base, which allows users to treat gas costs and sequencing as a loss leader.
As layer 2 solutions continue to mature, we can expect to see more dApps and wallet providers adopt similar strategies. This UX development could still occur on monolithic chains but is more stable on modular ones.
Conclusion
The debate around Ethereum’s gas fees has been ongoing for years, with proponents arguing that they’re too high and opponents claiming that they’re necessary. However, recent developments have shown that gas fees can be both low and excessively low depending on the context.
By understanding the concept of modular scaling and how gas fees work in a wholesale market, we can see that everything works as intended – even during peak demand. The future of crypto lies in embracing this paradigm, where users are one layer removed from the base layer and don’t have to worry about short-term spikes in gas fees.
As the space continues to evolve, I’m confident that most gas fees will be abstracted away from end-users, making it easier for them to use blockchain networks without worrying about costs.
