The debate over Ethereum's gas fees has long been a hot topic in the crypto community. Critics often argue that these fees are either excessively high or, more recently, too low, especially as rollups have helped reduce them. However, during the market crash on August 4-5, gas fees spiked dramatically, reigniting the discussion. So, which is it? Are Ethereum's gas fees too high or too low?
The Reality: Everything Is Working as Intended
The surprising answer is that Ethereum’s gas fees are functioning exactly as they should. Periodic spikes in fees are a natural occurrence in a system where demand for secure block space can fluctuate wildly, much like any other market for scarce resources, such as oil or electricity. Critics who see these spikes as a problem may have a flawed understanding of what the future of crypto should look like.
Understanding the Modular Scaling Philosophy
At the heart of this issue is a fundamental difference in how blockchains are perceived. In a modular scaling system, blockchains aren’t just networks processing transactions—they’re marketplaces for a scarce asset: secure block space. This space is continuously auctioned off to the highest bidder, typically either a large-scale investor (a whale) or a wholesale buyer like a layer 2 solution.
In contrast, monolithic chains operate on the principle of serving everyone equally, which is unsustainable because blockchains, unlike the internet, must prioritize certain transactions to ensure security and predictability. Delays in financial transactions can have catastrophic consequences, which is why tiered services and costs are necessary.
Imagine if the postal service charged the same for a second-class postcard as it did for an overnight package. It wouldn’t work—everyone would opt for the faster service, leading to unsustainable demand. In a modular blockchain system, however, the focus shifts. High fees at the base layer (L1) are acceptable because they primarily affect large transactions that can absorb the costs, while smaller transactions move to layer 2 (L2) solutions that offer lower fees.
The Role of Layer 2 Solutions
The key players in a modular L1 system, like Ethereum, include large transaction processors and wholesale providers such as rollups. These entities can weather short-term spikes in gas fees because they maintain healthy profit margins during periods of normal activity. This is similar to how airlines and gas stations manage fluctuations in oil prices: they absorb losses during price spikes and gradually adjust their own prices if high costs persist.
However, during the August 4-5 market crash, even rollup gas fees spiked, challenging the theory that L2 solutions should buffer users from such volatility. This anomaly is likely due to the immaturity of the rollup fee market. As competition among L2 solutions intensifies, we can expect these platforms to stabilize their pricing, perhaps even marketing themselves on their ability to manage fee volatility. Over time, sequencers on L2s might reserve profits during good times to cushion against bad times, much like businesses in other sectors.
The Future of Gas Fees: Abstraction and User Experience
Looking ahead, it’s likely that most gas fees will be abstracted away from end-users, especially retail customers. This trend is already visible in some areas, such as USD Coin (USDC) transactions on the Base layer. The ability to treat gas costs as a loss leader is one of the attractions of launching a new L2, and this strategy is also being adopted by decentralized applications (dApps) and wallet providers. For example, UniswapX is absorbing part of the gas fees due to Miner Extractable Value (MEV) practices, which improves user experience.
While this kind of user-friendly development could happen on a monolithic chain, it’s more likely to be stable and sustainable on a modular one. As the crypto ecosystem matures, the debates over gas fees may shift from whether they are too high or too low to how effectively they are managed across different layers of the blockchain.
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