The Gas Wars
Less of an issue these days, but still relevant with the recent flooding of leading blockchain networks — let’s talk gas wars.
A gas war?
Let’s try an analogy to explain what this is before we look at the definition.
Do you remember Black Friday in the USA? That day after Thanksgiving where people used to go mad for Door Deals at top retailers; e.g., come to Walmart and get a 50 inch flat screen TV for $100.
People went WILD for these deals — they’d lineup all night to be at the front of the line — giving up their valuable time to get in the door. People would camp out around the building and rush the doors once unlocked, trying to get their hands on the limited supply of valuable goods.
But, not everyone would be lucky. People would have traded their valuable time for no goods. With the understanding that time is money, people that didn’t get that flat screen essentially spent money but did not get a TV. While others, who arrived early, got that coveted TV.
That’s essentially what a gas war is.
Before I explain, let’s take a step back and make sure you understand gas first. Gas is the cost to perform a transaction on Ethereum (and a term used across other blockchain networks as a generally accepted named for transaction fees).
In regular times, gas usually remains around a relatively normal fee amount. However, as network activity picks up and there are too many transactions — gas fees rise, as users begin to offer higher fees over the normal fee amount to get their transaction processed, thus, creating a gas war.
Let’s keep our Black Friday analogy in-mind when I explain the definition below in several steps:
- Gas wars occur during high periods of blockchain network congestion or when there is a surge in transaction activity. Think about that Black Friday sale at Walmart for a TV.
- This higher level of demand activity on a blockchain causes users to compete to have their transaction processed more quickly — users essentially spend more money (gas fees) in hopes their transaction will be processed. However, you don’t know how much others will pay. Think about Black Friday and when you chose to arrive to Walmart. Think about the people that arrive at 1am vs. 4am to lineup and wait for entry — you don’t know when others will arrive — you’re taking a chance with how much time (money) you spend.
- Users that offer higher fees have a better chance of getting their transaction accepted. Think about the people that were at the front of the line.
- Users that offer lower fees have a worse chance of getting their transaction accepted and can lose out on those fees, even without having their transaction go through. Think about the people that were at the middle or the back of the line. Time (money) spent, but no reward.
There are some pretty infamous gas wars during drops of Doodles and Stone Cats, but the most well known is the Otherside NFT launch.
While big name launches do cause network congestion, not all launches cause gas wars. From technical issues, to poorly designed auction mechanisms, to just bad luck, etc. — many things can cause gas wars.
Whether it’s meme coins of NFTs, gas wars are something you need to account for when launching tokens — you need a strategy to prevent this, as it’s a terrible user experience and can be a costly mistake:
Hopefully this helps explain this concept in a digestible manner. In a future blog, I’ll write about the ways you can build preventative measures into your launch to minimize any risk of gas wars, but let’s save that for another day!
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