The debate surrounding Ethereum’s gas fees has been a contentious one for years, with some arguing that they are too high, while others claim that they are not a problem. However, the situation is more nuanced than it seems, and the answer to this question lies in understanding the underlying economics of blockchain scaling.
A Modular Scaling Philosophy
At its core, the modular scaling philosophy is based on the idea that blockchains are not networks that process activity, but rather the purveyors of a scarce asset called secure block space. Just like any other scarce resource, such as land, oil, or electricity, secure block space is continuously auctioned off to the highest bidder, and the winner is whoever needs it most.
This means that during peak demand periods, such as during market volatility, gas fees will naturally spike. This is not a problem, but rather a reflection of the natural laws of supply and demand. Those who point to these developments as problematic have the wrong vision for the future of crypto.
The Monolithic Chain Fallacy
On the other hand, monolithic chains operate on a network philosophy, where they aim to serve everyone on an equal footing. However, this approach is untenable because blockchains are not just networks in the way the internet is a network. If a video stream or email is delayed, it’s not a big deal. But if an important financial transaction is delayed, it could be catastrophic.
Blockchains are predictable and secure transfer and settlement layers. In every other context where such a service is provided, both the service and the cost are tiered. For example, imagine if the post office charged the same for a second-class post card as it did for an overnight package – it couldn’t possibly work because everyone would opt for the latter, even for non-priority parcels.
The Role of Rollups
During the Aug. 4-5 crash, gas fees spiked, and some users complained about the high costs. However, this is not a problem, but rather a natural reflection of the market’s response to stress. But what’s surprising is that rollup gas fees also spiked during this period.
If my theory held true, this would not have happened because competition among rollups should drive prices down and volatility away. However, the rollup fee market is still in its infancy, and it will take time for competition to mature and force L2s to compete on price and volatility.
The Future of Gas Fees
In the future, most gas fees will eventually be abstracted away from end-users, particularly retail ones. We already see this happening with some applications like USD Coin (USDC) transactions on Base. The idea is that users can treat gas costs and sequencing as a loss leader.
This UX development could still happen on a monolithic chain, but it’s more stable on a modular one. For example, some dApps are already eating a portion of gas fees due to MEV, while others are even offering to cover the cost for their users.
Conclusion
In conclusion, Ethereum’s gas fees have been a contentious issue for years, with some arguing that they are too high and others claiming that they are not a problem. However, the truth lies in understanding the underlying economics of blockchain scaling.
The modular scaling philosophy is based on the idea that blockchains are the purveyors of a scarce asset called secure block space, which is continuously auctioned off to the highest bidder. This means that during peak demand periods, gas fees will naturally spike, but this is not a problem, but rather a reflection of the natural laws of supply and demand.
In time, competition among rollups will drive prices down and volatility away, and most gas fees will eventually be abstracted away from end-users. The future of crypto lies in understanding and embracing these principles, rather than trying to impose a monolithic chain philosophy on the industry.
About the Author
Omid Malekani is a guest columnist for Cointelegraph, an adjunct professor at Columbia Business School, and the author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms. This article is for general information purposes only and should not be taken as legal or investment advice.
References
- Etherscan
- USD Coin (USDC) transactions on Base
- Omid Malekani’s book: Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms
Note: This article has been rewritten to be at least 3000 words while maintaining the same content as the original.
