Ethereum Transaction fee Market Reform: Will EIP 1559 raise fairness issues
Author: & have spent Pintail
Translation & amp; Proofreading: & have spent MinMin & have spent & O sword", ethereum lovers
1. The background
Reform of ethereum's fee structure and the search for a better allocation of transaction fees have been under discussion in the Ethereum community for a long time. Even before Ethereum's creation block was launched in July 2015, founder Vitalik Buterin Shared his thoughts on how to change the interchange fee market in the future and mentioned the possibility of destroying it. In 2017, Vitalik wrote about the implications of transaction fee destruction for creating a "medium of exchange" currency.
These ideas are certainly of interest to members of the Ethereum community, but without a concrete implementation proposal, they are limited to academic discussion. At the time, transaction fee market reform was not a pressing issue because Ethereum's transaction fees were not high. Indeed, throughout ethereum's early development, Gas prices have been well below the estimated "Rational" minimum. Although the short peak of demand during the ICO boom in 2017 led to network congestion, in general, users could easily make deals with very low transaction fees.
In early 2018, however, that changed. In the past, there were always Gas left in the block, but now the Gas in each block has been used up, which is not enough to cope with. Due to high demand for Gas from apps like CryptoKitties and the rise of FCoin, a token exchange that USES the "trade is mine" label, the Ethereum network was jammed for a long time, and the price of Gas needed to pack transactions into blocks shot up within a reasonable time frame.
Understanding Ethereum's Gas pricing mechanism has always been a challenge for new users, especially in the case of network congestion and volatile Gas prices. Smart users can use newer tools such as ethgasstation.info to determine a reasonable Gas price, and more and more Wallets such as Metamask have a Gas price estimation tool built in. Still, according to blockchain data, some users are overpaying for Gas, and the recurring congestion reflects existing solutions that don't fully address the problem.
2. EIP 1559 proposal
It was in this context that Vitalik published an article in July 2018 detailing a proposed reform of the interchange fee market (which was later written into an article on resource pricing). The proposal introduces a new transaction fee mechanism that divides the transaction fee paid by users into two parts: a "basefee" that is determined by the agreement and disposed of by the agreement, and a commission (set by users and now commonly referred to as a "tip" or "bribe") paid to the miners. The goal of this mechanism is to keep the usage of the block at half full (a full block is twice the size of the current Ethereum block) and to adjust the base fee rate based on demand (so that actual usage tends to be half full). Since the subsidies required for the miners' package barely change with demand, and users pay only low tips, most users do not need to change. This makes transaction fees much simpler and eliminates the need for users to understand complex and abstract Gas mechanisms. This is a big step forward.
So the question is, how should the agreement deal with the base fee? On the face of it, there seem to be four possibilities:
1.Send the base fee to a fund (e.g., developer fund);
2.Reward miners who dig out the current block with a base fee;
3.The base fee is Shared by the miners who dig the blocks later;
4.Destroy the base fee
First, you can rule out Option 1, because a centralised fund could create a governance nightmare. Option 2 is also not feasible, because it would encourage miners to fill blocks with junk, pushing up base fees regardless of user demand for block space. Only options 3 and 4 are available.
The final option was option 4, in part because it would have the added benefit of becoming the fuel to be traded over Ethereum. This helps stave off the threat of economic generalization, which some fear could cause Ether to go through a death spiral, greatly undermining the security and viability of the entire network. As for why option 4 was chosen, there are other reasons, which are discussed in sections 5-7 below.
This time, with concrete proposals, there was strong interest from the Ethereum community and based on this came EIP 1559. ETH owners are predictably optimistic about the economic impact of the destruction of the base fee. This amounts to a share buyback in which all ETH holders benefit based on their holdings. This enthusiasm was reflected in the establishment of EIP 1559 Community Crowdfunding Fund. To date, the fund has received the most Grants in the sixth round of Gitcoin Grants program.
3. Concerns from developers
Nevertheless, EIP 1559, if implemented, would be the most significant economic restructuring since ethereum was born. It also creates a lot of work for wallet developers, who need to adjust the user interface accordingly. As a result, EIP 1559 has been taken very seriously by experienced Ethereum developers. Among them, Dan Finlay of Metamask is often quoted. He points out that because EIP 1559 left the "base fee" parameter to the miners, the miners kept the base fee as low as possible to avoid a loss of revenue. If the miners manage to do so, EIP 1559 will return the trading fee market to a maximum auction model, where users will still have to bid to get their trades packaged up the chain.
In opposition to EIP 1559, Dan proposes NBSP; "Escalator" proposals. The proposal is also aimed at solving user experience problems, enabling more efficient price discovery without handing control of base cost parameters to miners. The solution presented by this proposal is also elegant, but so far has not received as much support as EIP 1559. Part of the reason may be that EIP 1559 also solves other problems such as economic abstraction. Sure, Escalator proposals don't go down well in Ethereum communities either, because members of ethereum tend to hold ETH for long and therefore prefer destruction of foundation fees. One, by the way, is another scheme that combines EIP 1559 with Escalator proposal to take one long, but has not yet been promoted into EIP.
Other veteran Ethereum developers, such as Nick Johnson from the Ethereum Domain Name Service (ENS) team, have also expressed concern about the momentum behind EIP 1559, as the implications and risks of fundamentally changing the basis of game theory in the Ethereum interchange fee market are unknown. Clearly, it would be foolish to overhaul ethereum's core economic machinery without fully understanding the implications.
4. Research promotion
In 2020, ethereum's demand for Gas continues to increase due to the popularity of stabilisation currency, decentralised exchanges and other DeFi applications. As a result, ethereum's transaction fees were higher than Bitcoin's almost every day from June to August 2020, except for eight days. Counterintuitively, such high transaction fees could spell trouble for the Ethereum blockchain. One group of researchers argues that as miners' income shifts from block subsidies to transaction fees, the environment becomes unstable and security is at risk, as attackers can launch attacks that do not require 51 per cent computing power. At the same time, the volatile nature of the Gas market and the associated user experience issues remain unresolved.
EIP 1559 can effectively avoid this problem by reducing miners' transaction fee income and maintaining the dominance of block reward in miners' income. As a result, the Ethereum team is pushing ahead with the evaluation of EIP 1559 to see if it is possible to achieve EIP 1559 through hard forks in the future. For example, Barnabe Monnot of the Eethum Foundation's Robust Group, who led the modeling and simulation work, and Tim Roughgarden, a researcher of algorithm-game theory, recently published an analysis that rigorously assessed EIP 1559.
At the same time, the client implementation of EIP 1559 is progressing. As of the end of August 2020, two Ethereum clients had implemented EIP 1559 and were running an early test network to resolve specification and implementation issues. In addition to the core Ethereum client, Filecoin and Celo networks are also testing implementations.
A lot of research resources have been devoted to EIP 1559, and no feasible attack path has been found so far. One of the attacks that can be imagined is force collusion. But, as Micah Zoltu notes in her article, even if interest groups controlling 51% of the computing power were to form and try to manipulate the base fee, the miners' individual private interests would drive them away from Qatar. This is different from the 51% block censorship attack on the PoW block chain, which can double the revenue by ignoring blocks dug up by non-group members and only letting group members on the chain.
While the study of EIP 1559 continues, we may find serious flaws in its economic mechanism. If no serious defects are found, we may be optimistic that EIP 1559 can be implemented.
5. To whom does ethereum's block space belong?
Thus, we can tentatively conclude that we can safely implement EIP 1559 on Ethereum. But should we? This is the fairness issue mentioned in the title of this article. Are miners entitled to all the transaction fees as a reward just because they take on the job of processing the transaction?
Not so, according to Ethereum's 2013 white paper. Unlike bitcoin miners, Ethereum miners have the responsibility of safeguarding cyber security, and NBSP; Permanent & have spent Get a block award as a subsidy. Currently, block rewards are fixed to each block 2 ETH, in addition to the benefits from tertiary blocks (blocks that are not included in the legal chain, but tertiary miners receive part of the block rewards). Therefore, there is no requirement that transaction fees should be sufficient to cover the cost of securing the network. This is an advantage because transaction fees vary widely and there is no guarantee that they will meet the security requirements of the network.
Moreover, not all transaction processing is done by miners, as the cost of state bloat caused by exchanges is borne by the entire network. Although all the nodes bear the cost, only the miners are rewarded. Users also pay an opportunity cost because when Gas prices are too high, they are unable to execute otherwise profitable trades. Thus, ethereum's block space does not belong to miners in any sense, but should be treated as "Commons". Charging miners high transaction fees is akin to charging rents on "public land", since the cost of packaging a deal for miners is far lower than the benefits they receive.
6. Fair compensation
To understand which part of the transaction fee is the miner's compensation and which is the "Commons rent", we need to know what the miner actually pays for the transaction. As the first section points out, the "minimum reasonable price" is the marginal cost of a miner's packaged transaction. This is due to the opportunity cost of the miners' blocks becoming tertiary blocks. The concept is an extension of the approach originally applied to Bitcoin. (1) (2)
Accurate data on the cost of a miner's packaged transaction is hard to come by, and varies as client implementations improve and the amount of Gas consumed to perform specific operations on the Ethereum virtual machine. As a result, Vitalik's research is out of date, and it is difficult to get data to come up with the latest estimates. Still, improved client performance means that miners may be able to pay lower costs than before, yet the transaction fees they receive are much higher.
Fortunately, the new interchange fee market proposed by EIP 1559 can solve this problem for us. Rational miners would pack only those deals that give a big tip/bribe. Users who are not in a hurry to have their trades packaged can pay lower tips, while those who race against the clock may pay higher tips. In general, tips don't fluctuate as much as Gas prices do. Most users will accept the default value of the wallet without having to worry about Gas price spikes.
Any part exceeding the fair compensation can be regarded as "fee surplus" or "transaction dividend". This is the base fee for EIP 1559. If not miners, then who should get the basic fees?
7. How to allocate surplus transaction fees
Of the four options mentioned in section II, only the "destruction base fee" remains to be chosen. When the base fee is destroyed, all ETH holders will benefit. Do they deserve it? I think so, and for two reasons.
First, because of Ethereum's issuance mechanism, the ETH holder has to bear the cost of inflation. Therefore, the surplus generated by the operation of the network should be returned to the ETH holder in a reasonable manner as a rebate. In some cases, the surplus of transaction fees may be equal to or greater than the block incentive, but whether or not the transaction fees are sufficient to cover the security costs, it is the ETH holder that ends up financing the protection of network security.
Second, ETH is not the only asset that benefits from network security. Ethereum protects a number of assets: stabilisation, synthetic assets, predictive market outcomes, liquidity shares, equity scrip and ICO scrip. These assets enjoy the security of Ethereum without sharing the costs. The current market for transaction fees is therefore particularly unfavourable to ETH. EIP 1559 helps solve this problem and, by minimizing ETH's net circulation (or even negative growth), brings the price of truly secure ETH to a head.
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