GAS Distribution Mechanism


The throughput of blockchain networks is inherently limited. There are several reasons for this. 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. 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 models. 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 20212 , 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.

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