Thread by @mt_1466

1/ When #l222 > L1

@arbitrum fees caused a frenzy last week. But is there any need for concern?

This thread will explain
- what happened
- will it happen again
- what can be done to mitigate it in the future

2/ A common misconception with the emergence of layer-2 and #rollup protocols within #Ethereum is that they will automatically come with cheaper gas fees and easier transactions for users.

3/ While this will largely be the case and is the intended goal, it is by no means impossible for a rollup to suffer from high fees, especially in its current nascent form.

This is precisely what occurred in early July.

4/ For a brief period of time, transaction costs on the popular L2 protocol #Arbitrum actually surpassed that of Ethereum in cost. This is due to Arbitrum running an incentivized user program, #Odyssey, in which users complete certain L2 transactions and get rewarded in NFTs.

5/ Because Arbitrum is rumored to release its own token in the future, #airdrop hunters ferociously gamed the Odyssey program in an attempt to qualify for the potential future airdrop.

6/ Ultimately, Arbitrum traffic far surpassed what the team anticipated, and they made the decision to shut down the Odyssey program until the launch of their future upgrade, Nitro. #Nitro is an upgrade to the Arbitrum One mainnet.

7/ Nitro helps Arbitrum adopt popular languages and tooling such as #WASM, #Geth, and Golang, allowing Arbitrum to increase transaction speed 20-50x, and lowers fees by an entire order of magnitude.

8/ @OffchainLabs have announced Arbitrum Nitro is nearly ready and a full-featured Nitro devnet built on Ethereum's Goerli testnet has been launched.

So what was the damage last week??
The Odyssey event saw a massive increase in user participation on the Arbitrum network.

9/ In fact, daily transactions nearly tripled from ~100,000 to ~300,000 with the launch of Odyssey as users flocked to take part.

10/ This spike led to Arbitrum gas fees surpassing Ethereum’s. Arbitrum pausing Odyssey in response to this spike event was mostly to ensure relative stability for any on-chain entities until transaction throughput is improved.

11/ How #Blockchain Transaction Costs are Determined

Users generally expect that #L2 protocols like Arbitrum will always have lower transaction fees than Ethereum as it is meant to be a form of scaling solution, off-loading transactions from Ethereum to other networks.

12/ This isn’t always true, though. Transaction fees do not care whether a protocol is an L1 or L2. Fees are simply a function of demand for limited block space on a network. The higher the demand, the higher the transaction cost.

This is precisely what occurred in early July.

13/ For a brief period of time, transaction costs on the popular L2 protocol Arbitrum actually surpassed that of Ethereum in cost. This is due to Arbitrum running an incentivized user program, Odyssey, in which users complete certain L2 transactions and get rewarded in NFTs.

14/ Because Arbitrum is rumored to release its own token in the future, airdrop hunters ferociously gamed the Odyssey program in an attempt to qualify for the potential future airdrop.

15/ Ultimately, Arbitrum traffic far surpassed what the team anticipated, and they made the decision to shut down the Odyssey program until the launch of their future upgrade, Nitro. Nitro is an upgrade to the Arbitrum One mainnet.

16/ Nitro helps Arbitrum adopt popular languages and tooling such as WASM, Geth, and Golang, allows Aributrum to increase transaction speed 20-50x, and lowers fees by an entire order of magnitude.

17/ Nitro will also allow more Ethereum developers to onboard onto Arbitrum thanks to the expansion of support for larger tooling.

Offchain Labs have announced Arbitrum Nitro is ready, and a full-featured Nitro devnet built on Ethereum's Goerli testnet has been launched.

18/ How Arbitrum Gas Fees Surpassed Ethereum

The Odyssey event saw a massive increase in user participation on the Arbitrum network. In fact, daily transactions nearly tripled from ~100,000 to ~300,000 with the launch of Odyssey as users flocked to take part.

19/ This spike led to Arbitrum gas fees surpassing Ethereum’s. Arbitrum pausing Odyssey in response to this spike event was mostly to ensure relative stability for any on-chain entities for Arbitrum until transaction throughput is improved.

20/ Users generally expect that L2 protocols like Arbitrum will always have lower transaction fees than Ethereum as it is meant to be a form of scaling solution, off-loading transactions from Ethereum to other networks.

This isn’t always true, though.

21/ Transaction fees do not care whether a protocol is an L1 or L2. Fees are simply a function of demand for limited block space on a network. The higher the demand, the higher the transaction cost. @paradigm

22/ For example, if Ethereum had no block demand, transactions would be essentially free. Ethereum is the most in-demand blockchain network in the space, leading to significant costs for users when it comes to transactions.

23/ L2 protocols like Arbitrum help lower the block demand on Ethereum by off-loading it to layer 2, but when demand on L2 networks like Arbitrum spikes - so does the cost of completing transactions. It all comes back to actual block demand on the network.

24/ This ties back into the struggles of some alternative L1 blockchains attempting to compete with Ethereum. Many argue that their own TPS and transaction throughout is far higher than Ethereum’s, pointing to testnets showcasing this.

25/ However, this means nothing compared to real-world demand. Any network can be cheap and fast without the demand that Ethereum faces daily. The same goes for L2 networks.