GAS Distribution Mechanism

Overview

The throughput of blockchain networks is inherently limited. This is due to several reasons. First, blockchain networks are decentralized, which leads to time constraints for replicating transactions across the network and executing these transactions by the nodes. Second, nodes maintain a copy of the entire transactional history, which leads to space constraints because the size of the history needs to be controlled and limited in order to stay manageable. For this reason, networks limit the size and execution capacity that blocks and nodes can assume. 

Throughput limitations lead to a “supply and demand” challenge, which leads to the following questions: How can we manage situations in which the amount of individuals or entities that want to use a blockchain network exceed the network’s ability to support them?  Permissionless  networks  have  addressed  this  with  dynamic  transaction-fee mechanisms. The more network space and computational capacity a person or entity requires for their registries/transactions, the more they have to pay. Consequently, the more users are using the network, the more expensive it becomes for each of them to use it. It is a classic supply and demand approach: transaction fees go up until supply and demand curves meet and equilibrium is reached. 

Because of that, there is a big problem with transaction-fee-based networks which is that they quickly become very expensive. The more successful they are in attracting users, the more unaffordable they become for these users.  For example, Bitcoin transaction fee average oscillated between $2 and $63 over the year 2021, and Ethereum averaged transaction fees between $17 and $63 in the fourth quarter of 2021, respectively. This is why transaction-fee-based blockchain networks can hardly be an option for government and enterprise use cases that generate large amounts of transactions. This becomes even more unfeasible when taking into account fee volatility, which makes forecasts for budget allocation very difficult.

As opposed to permissionless networks, LACChain Networks are permissioned blockchain networks which among other differences have erased transaction fees. Permissioned networks have been seen as the way to go for high transactional use cases. In the LACChain Framework for Permissioned Public Networks [LINK] we discuss how a permissioned public network can meet the benefits of permissionless networks and be at the same better for high transactional applications.

Erasing transaction fees is definitely good for users, as they can send transactions for free or with a fixed membership cost. However, two main trade-offs must be addressed. One is what are the incentives for the entities participating and looking after the network’s wellness if nobody gets rewarded with transaction fees (assuming that there is neither a native token or cryptocurrency serving this purpose). This is addressed in the LACChain Framework mentioned above. The second and probably most critical issue is how is the access and use of the network (i.e., the distribution of resources) managed, in a way that the network does not collapse due to the fact that everyone could in principle send as many transactions as they want for free. 

Over this documentation we describe the open-source solution developed by LACNet to address this issue in Ethereum-based networks and implemented in the LACChain Networks orchestrated by LACNet, through our Gas Distribution Mechanism. The open-source implementation is available in its corresponding [Github repository](https://github.com/LACNetNetworks/gas-management).

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