The Price of Gas:
Why KILT Chose Polkadot Over Ethereum
By Ingo Rübe, Founder of KILT Protocol and CEO of BOTLabs GmbH
There are many reasons why we chose to build the KILT blockchain on Substrate and plan to run as a parachain in the Polkadot ecosystem (i.e. the Kusama and Polkadot networks). One major reason is the fixed, low costs offered. For the first time, this will allow companies to incorporate permissionless blockchain into their business plans, knowing in advance what the costs of their transactions, and subsequently their product, will be.
To understand why this is a ground-breaking development for enterprise in general and us in particular, we first need to look at the history of blockchain.
Transaction costs on legacy blockchains
Blockchain first came to prominence after the Bitcoin white paper was released in October 2008. Bitcoin introduced two incentive models, providing a way for the developers running nodes (“miners”) to earn while maintaining the network:
1) By receiving newly minted Bitcoin tokens (BTC) for solving a cryptographic puzzle and winning a block (“mining”), adding it to the blockchain. This will occur until all the BTC tokens — a maximum of 21 million — are mined.
2) By receiving the “gas” (transaction fees) from any transaction within the block.
Ethereum, the next biggest cryptocurrency by market capitalisation, also has a system with gas costs. The user can choose how much gas they want to pay when making a transaction. The miners look at the amount offered and choose which transaction they want to carry out. Naturally, the more gas you offer to pay, the more attractive your transaction is.
Permissioned blockchain alternatives with stable gas costs do exist, but since the attraction of blockchain is that it can be trustless, i.e. the user can trust the mathematical system rather than having to trust in people, that was not an option for us.
Supply and demand
What we see with permissionless systems is that gas costs follow supply and demand. As a consequence, when the networks are busy many transactions end up in a memory pool on the network (e.g. Mempool) waiting to be processed, sometimes for up to a day. This is a critical problem with transaction fees on permissionless blockchains, as you never really know how much you have to put in to avoid being stuck in a Mempool, and subsequently how much the transaction is going to cost if you want it carried out within a specified timeframe. While this can be calculated using interfaces such as the Eth gas station, it means that the cost of the transaction isn’t known in advance, since it depends on the current market situation. This makes it nearly impossible for businesses to create a reliable financial plan for their costs.
At KILT, we use blockchain technology to record the hash (a number representing the information) of credentials issued. This forms a core part of our goal to create revocable, anonymous credentials. Using legacy blockchains such as Bitcoin or Ethereum, we could create a credential, but couldn’t quote a regular price — it could be inexpensive one day, and it could be €100 the next. Or it could take up to 24 hours to process.
That made building ID services on legacy permissionless blockchains impossible for industrial use, as a fixed production cost could not be determined in advance. Since a product price consists of the production cost and the profit, the price could not be set without risking winning or losing on each transaction, making it impractical to build a business model as an attestor. What we needed was a system with a more predictable cost structure.
Transaction costs on Polkadot
Polkadot uses different incentive mechanisms. Like the first incentive mechanism in Bitcoin, Polkadot uses a system in which newly minted coins are earned by the people running the network — the validators — and the nominators backing them. Therefore, the gas price doesn’t need to be competitive, as the validators are already compensated for their work and not competing with each other on price.
The gas price in Polkadot, therefore, has a different purpose. It is mainly to disincentivise spammers from flooding the network or causing bottlenecks with useless or extraordinarily heavy transactions, as users have to pay a fee to write a transaction on the blockchain.
The funds raised by these gas fees go to the Treasury. Native token (KSM or DOT) holders can then propose referenda and vote on how the gas is spent — for keeping the system running smoothly, marketing, community events, etc. Gas not used is “burned” and taken out of the system.
The actual gas costs vary depending on the computer power needed, and the amount of data to be saved. For example, a simple transfer of DOT from one account to another needs less gas than a smart contract, and saving 10 bytes of data forever uses less power than saving a gigabyte. Behind the scenes, the gas fee the user pays for a transaction in the Polkadot ecosystem is calculated by multiplying the base fee by the data amount needed by the computing power needed. So while Bitcoin and Ethereum are driven by the market, Polkadot is designed to be driven by computer algorithms, with a constant, fair fee depending on the size of the transaction.
Transaction fees on KILT
For KILT, writing the hash on the blockchain doesn’t use much more computing power than a simple token transfer, so the base fee for credentials can be kept low — as little as a few cents.
Another element of our system includes the possibility of delegation, for example allowing a large company to delegate attestation rights to several employees. Setting up delegation trees requires more power and energy because they need to go through the validator, and will therefore cost more than recording the hash. These costs can, however, be anticipated and written into a business’s cost structure.
Keeping transaction costs stable on KILT
As gas costs (known as the “angel’s share” on KILT) are paid in KILT tokens, volatility in the price of KILT would affect the corresponding price in fiat. We aim to address this in several ways.
The initial cost of a transaction will be set at network launch.
Later, on-chain oracles — which automatically link the base fee of KILT to the current price of the KILT coin in fiat — could be used to keep the cost stable. Until these oracles are available, in the event of the fee going too high before Sudo is removed, we could adjust the cost. After Sudo is removed and before oracles are introduced, changes to keep the cost stable could be made by the community of token holders using on-chain governance.
Bringing blockchain to business
The fixed, stable costs of using permissionless blockchains via the Polkadot ecosystem will finally make blockchain technology practical and accessible to a wide variety of use cases in business. We look forward to being among the first parachains in the ecosystem and having our credentials available not only to those already using blockchain, but for traditional businesses and users. Using our open-source SDK, even small companies could build solutions to meet their digital ID needs cost-effectively and without blockchain expertise. Finally, the advantages of trustless blockchain technology can be brought to the mainstream, bridging the advantages of the fairer, decentralised Web 3.0 to our current experience of the internet.