Ethereum Gas Fee: Too High or Too Low?

Bittime - The debate around Ethereum (ETH) transaction fees or gas fees has been going on for a long time. Some people complain that the costs are too high, but on the other hand, this year the costs tend to be lower, especially thanks to rollup technology. 

However, the incident on August 4-5 caused the situation to change drastically with transaction costs soaring. So how? Ethereum gas fee is it too high or too low? Check out the explanation in this article!

Answers About Ethereum Gas Fees

The answer may be surprising: everything went according to plan. Occasional spikes in transaction costs are normal in a dynamic market. Those who see this as a problem actually have a wrong view of the future of crypto.

The concept of modular scaling is based on the idea that blockchain is not a network that processes activities. Rather, this decentralized network is a provider of scarce assets called secure block space. 

Like other scarce assets (such as land, oil, or electricity), safe block space is continually auctioned off to the highest bidder, and the winner is whoever needs it most. These are usually large investors or wholesale buyers, such as layer-2.

Meanwhile, monolithic chains have a more inclusive networking philosophy: they want to serve everyone equally. However, this is not easy because blockchain is different from the internet. 

Read also: Ethereum Support Level is at $2,314 to $2,435

Delays in streaming video or email don't have much of an impact. However, delays in important financial transactions can have fatal consequences. Blockchain is a predictable and secure transfer and settlement layer. In the context of other similar services, both the service and the fees are gradual.

Imagine if the post office charged the same for a second class postcard as an overnight package. This won't work because everyone will choose the latter, even for non-priority plans. 

Setting supply prices always below demand means you have to constantly add capacity to prevent costs from rising higher.

However, in a modular chain, this is less of a problem. Individual users who still transact on L1 want maximum security. This makes sense if they make large transactions. 

Explanation About Ethereum Gas Fee

A trading company doing a $5 million (Rp. 78,500,000) swap doesn't care if gas rises to 500 gwei. It has almost no impact on their bottom line.

Other players in L1 are wholesale providers such as rollups. They also don't care much about short-term base layer cost spikes. 

Read also: Ethereum Volatility Exceeds Bitcoin, Opportunity or Risk?

They have healthy profit margins when activity is normal and costs are low. This creates a cushion for them to operate at a loss during surges.

This is how every market works for other scarce assets. Airlines and gas stations are wholesale buyers of oil products. When oil prices are low, they have larger profit margins. 

When oil prices spike, they absorb most of the rise, perhaps operating at a loss. If high prices persist, then they slowly raise their own prices. 

What's important is that retail customers (plane passengers, car drivers, etc.) are one layer below.

The caveat to all this in crypto is that, during the dip on August 4-5, rollup fees also spiked. If this theory is correct, that will not happen. But that's because the rollup fee market is still very young. 

Over time, competition will force L2 to compete on price. Not only at absolute levels, but also in volatility. Some will even advertise themselves with this promise. 

When that happens, sequencers will save some of their profits during the good times to absorb the shock during the bad times.

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