Why Crypto Transactions Cost Money | Gas & Blockspace Explained!

So here we are running into the underground crypto moon base research laboratory. Imagine a highway with only a few lanes. Maybe if you live in rural parts of anywhere, you it's not hard for you to imagine a highway with only a few lanes. I live in Florida, you get into like Georgia and the highway is only two lanes. Deep dive in everyday with underground. Yep, shout out to all my undergrounders. Thank you for being here. Uh when traffic is light, cars move freely. So just think about it in terms of traffic. I think that's a really good metaphor or analogy. There is plenty of space and vehicles pass through quickly, but when the highway fills with cars, congestion appears. Drivers compete for space and movement slows. Blockchain operates in a similar way. Each block represents a limited amount of

space when transactions can be included. Only a certain number of operations can fit in each block before it is full. This limited capacity creates scarcity. Now, what I was just thinking is um if anybody's ever had to take like a ferry or a boat where you drive onto and it takes you across some kind of waterway, it's kind of the same idea as a block if you're trying to apply this analogy of traffic because there's only so many cars that can fit on a on, you know, on a ferry and then it has to go to the other side and unload those cars. And if you didn't get on, you got to wait for it to come back and load up the next batch and hopefully you make it on that one. I've never lived anywhere where you had

to do that although I've been on one before. And so if you're going to use this traffic analogy, I like blocks being like a ferry that takes you across the river and it can only hold it can only hold say like, you know, 50 cars. And once that ferry's full, you got to wait for the next block or the next ferry. So this limited capacity creates scarcity just naturally. So when you send a transaction and it enters the mem pool, we've talked about mem pools so much. I hope that when I say mem pool, everybody knows what it is. A waiting area shared by the entire network. Other transactions are waiting there as well. Validators must decide which ones to include in the next block, right? So imagine even you're at like the ferry and you're trying to get

across and then like somebody's coming by and they're saying, well, how much are you going to pay to get on? Oh, you're going to pay 10 bucks? What about the guy behind you? They go to him and he's like, I'm I'll pay $50 to get across right now and they're like, come on. You can get ahead of everybody cuz the fee is usually 10 12 bucks. If you're willing to pay 50, matter of fact, everybody who's willing to pay 50 bucks, every all you guys get on first. That's how it works, right? They usually choose the transaction offering the highest fee. In effect, users bid for space on the blockchain. Those willing to pay more are processed sooner. Pay-to-play. While low fee transactions wait longer. And I'm sure some of you guys have had this on Ethereum. You're trying

to use Ethereum and or any network really, but this is very predominant for a long time with Ethereum where you could choose um if you wanted it to be fast, normal, or slow, right? And of course it was about the fee. If you click slow, you paid a lot less fee, but it could take forever if the network was congested, right? Gas represents the cost of computation required to execute an operation. What it cost in order to get your your transaction approved. Simple transfers require little gas, right? Complex smart contract interactions require more resources, so they cost more. During periods of high demand, competition increases. Users raise fees to ensure their transactions are processed quickly. This bidding process drives gas prices upward. Uh just like everybody who always complained about Ethereum costing so much. It was costing so much

because everybody was using the network. The result is a market, right? So the whole process of trying to sell that space to the highest bidder is a market. Blockchains do not allocate transaction space randomly. They allocate it through economic competition for a scarce resource. Fees are not arbitrary. They are price users pay to access limited block space within a decentralized system. And we'll get to our normal talking points here. And I want to just kind of go right into them because I feel like they were doing a good job here at raising your crypto IQ. I feel like that we went really smooth, so we're just going to keep going. So blockchains have limited capacity. How do we impose a social a socialist utopia on blockchain gas fees? I you can't. That's it. You you can't. Or or uh

create your own blockchain and and then try and I'm saying you, I'm just saying whoever wants that vision. Maybe you're just making jokes, which was a good joke in my opinion. Maybe a little techy for some people. Um but yeah, like I guess you'd have to make your own blockchain and make the consensus work in a way that you feel like models a socialist utopia. All right. I mean your name is I hate CCP, so I'm going to assume you're not pro socialism. All right, blockchains have limited capacity. So we're going right with what we were just talking about. Everybody with me, drop a 111 in the chat if you are with me. If you can hear the sound of my voice, drop a 333 in the chat. If you actually are listening along and even slightly understand what

I'm saying, throw 111 in the chat. Where all my people at? Roll call. Uh he says lol. There we go. So every blockchain can process only a limited number of transactions per block. This limitation creates scarcity in how many transactions can be processed at any given time. This scarce capacity is called block space. So I have done so many shows from different angles around this topic and I still feel like it goes over most people's heads, right? Block block space markets, all kinds of different things I've titled it and taken different directions at and we're going to keep doing it until you know this stuff like the back of your hand or I guess you don't come anymore. One or the other. All right. Uh block space as a market. So it's going to get into it just like

I was talking about. Because block space is limited, users compete for inclusion to be included. Transactions offer higher fees offering higher fees are prioritized by the validator. So the validator, right? He got into this business because he um wa- wanted to be charitable to all mankind. No. Validator got into the business of validating to make money. And they usually had to pay a lot of money. I can't remember what it was, but um I wasn't like a 100,000 ETH you had to own back in the day to start a valid I don't know, it was a lot. Either way, it's a lot of money for a lot of these different ones. And even if it's not a lot of money, it's some money. You're going to it's not free. At least not for your major monolithic blockchains. Anyways, the

validator got in here to make money, right? So if you're running a business and say your business was something like super simple, right? And you were selling tickets for somebody to get into a concert or get into a fair or get into some kind of event that was going on and your business was selling the tickets. If there were 10,000 people waiting to get a ticket and the tickets are $5, you just be like, yo, anybody who's willing to pay double, you get to come first. If you're willing to pay $10, you get to get ahead of all these people who want to pay $5. And you're like, oh, some dude's just like, you know, well, I'll pay $20 to get ahead of all of the people. And you're like, all right, come on down. And then it becomes

a bidding war for who will pay the most money gets to come up and buy their ticket and get into the event first. And that's the same idea except for getting into event, you're getting your transaction or your proposal into a space within the block. I know you guys are following along. Y'all get it. Y'all get it. Um 111 333. Uh I love ICP. That's hilarious. I don't actually like ICP. Um I can't name an actual single song. What's up, Cryptic Quinton? What's up, man? How you doing? Welcome in. Welcome in. I love BTC. There you go. All right. We're raising that crypto IQ, Quinton, so welcome in. Welcome in. So what gas actually represents? Gas measures the computational effort required or at least demanded to execute operations on a blockchain. Simple transfers require little computation whilst complex smart

transactions contract interactions require more. Gas reflects resource consumption. So everybody wants cheap fees, then you got to have to have really good throughput or ability. So think about this, right? Everybody wants things to run smoothly. So let's go back to our traffic or highway analogy. You got a two-lane highway, a three-lane highway, and it's coming to a crawling stop because there's just not enough room for everybody and and nobody can get through. There's congestion, right? That's what we would call it. When you have congestion in a network, it's very much the same thing. Things will drastically slow down or sometimes can even come to a complete stop on the network. Well, imagine if all of a sudden now we had six lanes on that highway, 10 lanes on that highway. That is what we call throughput. The ability to

put through a lot of transactions at a time. And that's why you'll see a lot of different blockchains, Solana, whatever, arguing about who's the fastest. Who can handle the most throughput? Stuff like that. And when we go to their websites for these different layer ones and stuff, you'll see them touting their throughput metrics, right? How much they can throughput at one time. So how fees are calculated. Transactions fees depend on gas use, gas price, and the network demand. When many users compete for block space, gas price increases. Network congestion. Wow, it's almost like I was just talking about that. And I'm with you, Campster. I don't know anything about ICP. Um I'm waiting for moon. Yeah, I think we all are. Sam Sammy did his weekly screen share public on YouTube and there was like 500 plus people. Nice.

He didn't do a um uh what do you call it? Where like you a members only link? Chain means one after one after one. Yeah, and the one would be the blocks, right? How can you have multiple throughputs on a linear blockchain? Uh monolithic blockchain. On a linear blockchain, well, what about a modular blockchain? Um that's something that we've talked a lot about here, modular blockchains in different ways. Oh, it was an accident. Okay, Cryptic Quinton. Yeah, I didn't think he normally did that, right? It's supposed to be for all the people. That's one thing that um I I always have to rewatch the the Thursday screen share because I'm always live when he does it. He forgot to make it private. Hey, things happen, but at least maybe people got a taste, right? Of what it's like to

be in that Discord. I hope it I hope it means he sells a bunch of you know, access to his Discord. Network congestion, right? During periods of high demand, mem pools fill with pending transaction. Validators prioritize transactions with higher fees, causing users to bid against each other. Congestion drives the fee upward. Validators and fee incentives. So, validators earn fees by including transactions in the block. This aligns this incentive aligns validator behavior with the network's economic structure. Fees reward block production. So, fee markets and efficiency. Fee markets allocate scarce block space to transactions that value it the most. Users will pay more gain faster inclusion, who are willing to pay more, right? Markets prioritize that that demand. So, scaling and fee reduction. And this is where we get into And this kind of goes right to the question he was

just saying. Um He says, "So, does it remain a layer one to have a modular blockchain multiple throughputs?" Yeah, it definitely is a layer one. I mean, what's the definition of a layer one? I would say the most basic definition of a layer one would be smart contracts, right? Having the ability to implement smart contracts to me is a layer one. Now, where that puts Bitcoin is very interesting. You do have inscriptions on Bitcoin. So, they're like there's a tiny bit of ability to have very basic contracts. I don't even know if you'd call them smart contracts. But, you have both modular blockchains, right? And then you have layer twos, right? Think of base base protocol, Arbitrum, Polygon, Polygon or you know, Matic as it used to be called is what most of us know it by, which are

layer two systems on Ethereum. So, they can batch a large number of transactions and then basically make that you make imagine just taking 10,000 transactions and processing it like those 10,000 transactions were one transaction. Or what about 100,000 transactions like they were just one transaction on the network. And if we go back to our traffic analogy, you can imagine like what if you could suddenly carpool 30 cars into one car and then every car on the road was just every 30 cars on the road was just one car. Imagine how good traffic would run then. Like if if all traffic was just buses full of people and you had 40, 50 people on every bus instead of individual cars. Traffic would be flowing, it'd be a lot easier. And that's more of the idea of a layer two system.

Um yeah, he forgot to make it private. So, the normies got a sample of what it's like to be in the 99. Hey, maybe that's good. I hope that it actually has a super positive effect for him and he sells a bunch of access to his Discord. With a modular blockchain is instead of having like gas and a smart contracts and like the many different things that are going on on a blockchain, all driving on the same road, imagine you had separate highways for separate things. Like imagine your highway, I don't know where you live. I live in America, so imagine you had one highway that was only for freight trucks, right? It was only for semi trucks and nobody else got on it. Then you had another one that was only for, you know, police, firefighters, EMS, like

was only for your emergency type stuff and nobody else drove on that one. And then you had another highway that was only for regular people. That'd free up a lot of space, right? That would make things run a lot smoother. That's the idea of a modular blockchain. So, it doesn't really change its ability to execute smart contracts. If anything, it just makes it a lot faster and easier. Scaling improvements aim to increase block space availability. When capacity expands, fee pressure decreases. So, scaling expands supply. So, core insight. Crypto transaction fees exist because block space is scarce and markets allocate access to that scarce resource. Now, one thing that I will say is that there was one there was one project, I don't even remember what it was, where they were basically like, "Okay, well, let's just take the blocks

and make the blocks really really really small so that they get filled and and and finalize, right? Finality, quickly, right?" So, it's like instead of having to fill up a block with and I don't know how many are in your typical block, honestly. But, say it was 10,000 transactions. Well, what if it was only a thousand and we just filled them really really really really quick, it would be easy for people to get into them. That is um I guess more along the lines of what a real time uh real time network would be. Let's see. Let's see if I can find this