Currently, the value of the ETH token comes from demand for blockspace and execution. The more demand for executing contracts and storing data on the chain, the higher the value of the token. However, certain parts of Ethereum’s scalability roadmap seem to disrupt this. Specifically, scarce blockspace will become abundant with danksharding, and execution of most contracts will move to layer 2 roll-ups. Here I will argue that the data-layer, not execution, will be the primary driver of value to the ETH token, and that Ethereum is not in danger of collapsing due to a loss of economic security.
Assumptions
For the sake of simplicity, we will make several assumptions that may be a bit idealized or extreme, but can be used to approximate how the future network will be utilized.
1. Roll-up settlement contracts will be the only contracts generating any revenue for ETH on the execution layer.
We can make this idealized assumption because L2 roll-ups will be just as secure as the base layer, much cheaper; there is nothing to gain from using applications on L1. Overtime, this will likely hold true.
2. The more users there are, the higher the bandwidth of the data layer.
In the future, every web and mobile wallet will be a DA sampling stateless light node. These light nodes are responsible for verifying the availability of tiny pieces of blocks, by downloading small amounts of data from block producers. When enough of them come online, block size can be safely increased.
One might argue: more nodes = more blockspace, therefore, higher supply of blockspace = lower cost of blockspace = less revenue for Ethereum.
However, one forgets that more nodes = more users.
3. Users create demand for data
If an increase in DA light nodes enables an increase in block size to keep L2 fees down at a usable level, bandwidth may increase by a fixed amount per user, but there is no limit to how much bandwidth any user will consume. These users spun up DA light clients because they want to interact with the Ethereum network via apps on roll-ups. If the users is making frequent digital payments, trading crypto, NFTs, or other activities with some average frequency, they will likely consume much more bandwidth than they created by running a DA node.
In conclusion, no matter what, growth of supply of bandwidth will be linear, while growth in demand for bandwidth will be much higher.
So relax! Ethereum is not going to go to zero and collapse! Just like any productive business, the rate of profit will fall over time as it scales. The amount of revenue generated per user will decrease somewhat, but this is a natural part of scaling, and not a threat to Ethereum’s economic security. An increase in users thanks to falling cost may even be enough to further cement ETH’s position as a productive asset.
Disclaimer: I am not an economist, I am a humble dev. I wrote this piece based on vibes, not empirical evidence.
