Opinion: EIP-1559 is futile and of no benefit
Source: Ethereum Enthusiast
Original Title: "Viewpoint | EIP-1559 Is Futile and Useless (Revised Edition)"
Author: A Jian ;
Author's Note: For already quite Readers who are familiar with EIP-1559 can go straight to the fourth subsection of the third section below. In this section, I provide a fairly complete analysis. You can even learn from it which arguments made by the supporters are actually true in which situations. However, none of them were able to map the full impact.
and not very familiar with this Readers of the topic can start from the beginning. If you still need an introduction to the content of EIP-1559, please see here.
1. Introduction
The name "EIP-1559" must be familiar to everyone. This proposal, which was formed in March 2019, was promoted by David Hoffman as "the last piece of the puzzle in Ethereum's monetary policy" because of the introduction of a mechanism for destroying handling fees (thus reducing supply). The key link of the ", has received more and more attention.
A year and a half ago, after reading the introductory article by Eric Conner, author #2 of the EIP-1559 proposal, I wrote a scathing article arguing that this proposal would not solve the problem it was originally intended to solve, but would introduce more transactional friction. My friend Elisa also helped me translate the article into English, but unfortunately there were very few responses.
Times have changed, and the voices supporting EIP-1559 have appeared again and again recently, whether it is the expectation of "deflationary Ethereum", Whether it's anxiety over rising gas prices, it seems to be fueling the popularity of the supportive narrative.
But I never saw a reason that could convince me. These supporting opinions either misunderstand the operating principle of the fee market (it is actually and can only be a so-called "one-price auction", the owner can set the reserve price and the auction with the highest price); or only see the EIP -1559, while ignoring its other effects; all in all, neither provides a complete analysis.
I collected several recent articles that support EIP-1559:
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Analysis of EIP-1559 (Chinese version) What if ETH had a fee burn 5 years agoEIP-1559 51% Attacks: Should you live in fear（Babbitt Chinese version)
Ethereum fee market reform: EIP-1559 as a question of fairness (Chinese version)
I have great respect for the intellectual resources that the authors of these articles put into them. In any case, without these analyses, the full picture of things would not have become clearer. But in my opinion, they are all a bit hasty in drawing conclusions, lacking evidence for some key claims, or proving that the new mechanism cannot be manipulated, but not proving that the new mechanism will be better than the current mechanism (below These articles will be referred to with "#" signs and numbers).
I will start with some simple economic reasoning, and then discuss the problems of these articles in detail.
2. Simple economic reasoning
Assuming that the market price of an item is very high, do you think that depriving the producer (seller) of the economic income obtained from this item can make the cost of obtaining this item lower?
Obviously not, because prices are determined by supply and demand, and cutting sellers' income would hit them The enthusiasm for production will also block the signal effect of price (profit rate), which will reduce the enthusiasm of potential producers to enter this production field and affect the extent of future supply increase. If the supply cannot be increased, it is futile to say more.
But EIP-1559 just wants you to believe that cutting the income miners get from Gas fees can make The price of Gas dropped. how can that be possible?
Suppose you go to the hospital now and find that the doctor’s outpatient fee is very high, you think it is expensive, which of the following do you think How can you get a more cost-effective service (better service for the same price, or less cost for the same service)?
A. Lobby the government to introduce control measures for outpatient fees, divide doctors into grades, and assign doctors of each grade Set an upper limit on outpatient fees;
B. Suing doctors on social media, scolding doctors for being mercenary, regardless of whether patients live or die, is immoral at all;
C. The government began to tax the outpatient fee, or increase the tax rate of the outpatient fee;
D. While the government taxed the outpatient fee, it comforted everyone It doesn't matter, I don't spend all the tax collected, I put the money in an account that can be made public and never use it, to help everyone deflate;
E. Government control The price of doctor's consultation fee, at the same time subsidizing doctors, and finally taxing the consultation fee;
F. While the government collects taxes on the consultation fee, it says that these taxes will become A pool of funds, enjoying the savings interest of the bank, and after a period of time, the funds will be returned to the doctor according to the proportion of the consultation fee with interest.
Which method do you think is useful? None of them worked.
#A, controlling the price of consultation fees (obviously forcing down consultation fees), will lead to a large increase in demand The lack of supply is reflected in the upper limit of the number of registrations that can be registered, the increase in queues, and the scalpers who help registration. In addition, the average consultation time for patients will decrease. Do you think you really got a benefit? No, although your monetary cost has decreased, the cost of time (queuing) has increased. Furthermore, it has caused patients to be unable to use bids to express the urgency of their demand for medical resources, resulting in the actual use of medical resources shifting toward a more time-valued value. Low group bias. According to the words of this industry, high-quality medical resources are attacked by DoS.
#B, there is no need to explain this, right? It is equivalent to imposing a negative price on the compensation of doctors.
#C, for the same consultation, the income you can get is lower, and the doctor is willing to spend his thoughts naturally Even less. Moreover, the wool comes from the sheep, and all the taxes are squeezed out of the buyer and the seller at the same time, so that when there is not enough money on both sides, the transaction will not happen at all.
#D, people with a discerning eye should see it, but this is actually EIP-1559. It is actually #C (the effect of taxation) plus the effect of monetary deflation. Currency deflation certainly has the effect of causing currency appreciation, but don’t be fooled by the appearance: If destroying part of your property can make your situation better, why don’t we see people burn their money often? (Assuming that the amount of deflation increases the value of money proportionally (this assumption is of course unreasonable), this is actually a simple math problem) In the combination of "tax + deflation", the doctor's consultation fee price (measured by the amount of money) (expression) becomes lower, but the value of the currency rises. Even without a detailed analysis, it should be said that "one high and one low are hard to say", but if doing so can increase their income, why have we not seen the consumption tax? The industry rallied to lobby the government to destroy the tax?
#E, some people argue that #E is the actual situation of EIP-1559, because miners not only have Gas Fee income, as well as block rewards. But in reality, there is no difference, because block rewards can only motivate them to provide proof of work, not gas. It's like changing the income structure of doctors and substituting government subsidies for consultation fees. The result is to encourage doctors to sit on duty instead of encouraging doctors to see a doctor. I don’t know if you have heard of some doctors in primary hospitals who make referral orders for a job and never actually see a doctor?
There is only one logical key to associate EIP-1559 with the above example, that is, EIP-1559 is first a kind of tax. Why do you say that?
The key move of EIP-1559 is to make the amount paid by users (buyers) not equal to what miners (sellers) get amount. The total amount paid is divided into base fee and tip (the amount actually received by miners). The user spent 10 yuan, but the miner only got 5 yuan. Where did the middle 5 yuan go? Don't care where it goes, isn't it just a consumption tax!
- Source: EIP -Economic Analysis of 1559 -
As long as you know it is A consumption tax with a specific amount, you can think of the two most basic principles in tax economics:
(1) Consumption tax has never been a benefit collected only from producers, but also from consumers. Looking at the green part of the above picture, it is clear at a glance. The part above P1 and below the blue demand curve is the benefit obtained by consumers, that is, they are willing to pay a higher price ("Liquid Mining Daily Chemical Yield 100% , operate a wave"), but only paid a lower price ("Gas fee is only 1%, which is not bad"), thus getting a part of the benefits, called "consumer surplus"; similarly, there are "producer surplus"; surplus”; but taxation does not only encroach on producer surplus or consumer surplus, but both;
(2) Where there is a consumption tax, there must be an inefficiency loss, that is, the surplus of both buyers and sellers is not enough to pay the tax, so the transaction does not take place at all. It is the triangle formed by the right side of the green square in the above figure, the angle between the supply curve and the demand curve. That is to say, EIP-1559 will reduce the supply and consumption of Gas.
Many people claim that EIP-1559 can improve the user experience, obviously they did not analyze this point. After the analysis, I don't understand how to say that the user experience will be better. At least, the amount that users have to pay has not decreased.
As for the deflation it causes, I have already said it before. Deflation certainly increases the value of currency, but since it has no reason to prove that miners will get higher income from Gas, there is no way to prove that miners will be more willing to optimize the network and nodes and provide more Gas (that is, Gas supply will increase), naturally there is no way to prove that it can reduce the Gas price.
What's more, it obtains this kind of deflation at the expense of ETH's property attributes.
Next, I will discuss the fallacies of the above articles.
Three. A wise man thinks twice
In this part, I will respond to several basic concepts and theories in the argumentation of the above four articles. These concepts mainly come from #1, #3 and #4. This is of course because #2 does not actually provide any arguments, it just extracts the historical Gas consumption and Gas Price data, roughly assumes a destruction ratio and calculates the destruction amount. However, a blockchain that implements EIP-1559 is unlikely to have the same smoothness and transaction volume as a non-implemented blockchain.
(1) #1 and Slack mechanism
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#1 argues in the paper that EIP-1559 makes the actual size of blocks more elastic to deal with sudden surges in demand, so that some blocks can be more Large, but at the same time, it will not become a long-term burden once the capacity is expanded. This claim is reasonable. EIP-1559 defines two concepts related to Gas capacity: target Gas capacity and maximum Gas capacity; the former and the actual Gas usage are used to determine whether to increase or decrease the base fee rate, and the latter is the maximum gas capacity of a block. The amount of Gas used. Therefore, when the demand suddenly increases, miners can package larger blocks in a short period of time without going through a long consensus formation process.
It was my oversight that I didn't mention this in the last article.
But this is not without cost, assuming a sudden drop in demand, the rate that users are willing to pay will drop directly If it is lower than the base fee rate, the Ethereum network will have to release empty blocks and wait for the base fee to be adjusted downward.
(2) #3 and the security of EIP-1559
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#3 Committed to proving that EIP-1559 is uncontrollable, and even a 51% attack on proof-of-work cannot manipulate EIP-1559.
In my opinion, the argument that EIP-1559 is unmanageable misses the point entirely, or rather Claiming a benefit that is not exclusive to oneself.
Because miners don't need to manipulate it at all. It turns out how miners make money, and how they still make money after the implementation of EIP-1559, but the name has changed. The original earning was called Gas Fee, and now the earning is called tip. Although the names are different, they are actually the same. As long as the miners still hold the power to package the block, you have no way to force them to package the transaction that will make them lose money (that is, the transaction whose tip is not enough to cover the opportunity cost they paid for packaging this transaction), they can Determine the supply of Gas.
Don't get me wrong, I mean, I also think EIP-1559 is uncontrollable, the cost of manipulating it It is greater than the harvest. But since the miners don't need to manipulate it at all, this benefit doesn't exist.
(3) #4 and "The Commons"
I must admit that what shocked me the most was the "commons" doctrine proposed by #4. In the section "Who owns Ethereum's blockspace", the author argues that the work of miners to protect the network has been block The reward is bought out, and the cost of processing transactions is not borne solely by miners, so miners have no way of claiming that they "own" Ethereum blocks, and naturally they cannot claim that they should be paid transaction fees.
The author's conclusion is: This means that the block space of Ethereum is a "commons", and miners "Rent seekers on the commons".
It really surprised me. I am not only surprised that the author seems to have completely misinterpreted the role of proof of work (PoW), ignoring the core function of PoW to order transactions in a distributed system. We need PoW precisely because it allows us to order transactions in a distributed system. This sorting function is essentially the same thing as what the author calls "securing the network". From an individual point of view, it is true that miners provide proof of work to obtain block rewards; but from a network point of view, packaging transactions and transaction ordering are the core functions of PoW. If this functionality is missing (whether banning it from the protocol, or removing their incentive to package transactions), it hurts the protocol itself, either it will become a centralized system, or it will hurt the property of the protocol currency property (non-transferable property is worthless), and there is also the possibility that the user must pay this price in other ways than currency (extremely inefficient) (do you want to guess which project?).
On the other hand, what amazes me is how close the author is to the truth. That's right, assuming we agree with the author's reasoning that the block space of Ethereum is a common land, then the author should also think that the first principle of public land governance is privatization, whether it is privatized directly or indirectly. In our case, it is to use competitive advantages to define property rights, that is, to determine which mining pool can obtain a large share and profit based on the ability to collect and package transactions.
The author said that miners are rent-seekers. I said, of course, they are rent-seekers. anything else? Everyone who pursues "producer surplus" is by definition a rent-seeker. The important thing is that the prosperity of the world is all for profit, and the world is full of hustle and bustle for profit. If you don't give them the rent, the land will go to waste. End users also get less.
(4) #1, #4 and "Improving Security"
In both #1 and #4, the author mentioned an argument: when the transaction fee becomes the main part of the miners’ income, because the transaction fee will have huge fluctuations, gradually The computing power input of miners will also fluctuate, and the security of the network will also fluctuate accordingly, which makes the Ethereum network fall into an unfavorable situation; EIP-1559 can eliminate this risk once and for all, by reducing the fee income of miners while maintaining the area The value of block rewards is used to maintain the stability of miners' computing power input.
Whether the proponents of EIP-1559 realize it or not, this is actually the most complicated and ultimate argument. It combines the Ethereum community's understanding of network security policy (that is, monetary policy) to find an ultimate benefit.
However, using the tools we described above (supply curve, demand curve, market equilibrium point, producer Surplus, Consumer Surplus), it is also possible to analyze whether this argument is correct. Because in the final analysis, what we have to do is to judge the changes in the income of miners. If the income increases, then the computing power to maintain the network will increase. The concept of "surplus" represents the benefits obtained by the transaction participants.
Under the current fee mechanism, only two pictures can cover all market situations, namely :
The orange supply curve represents the miner's supply curve, which means that the miner provides one more unit of Gas , the required marginal price is rising, because providing Gas means paying the amount of calculation, which means paying time, and the more time it takes to assemble a block, the greater the risk of its block becoming an uncle block. The blue demand curve represents that the user's bid for each additional unit of Gas is decreasing, because users will prioritize their urgent needs. The intersection point of the two is called the "equilibrium point", which means that the user's willingness to bid is consistent with the willingness of the miner to ask for the price. The price at this point is the Gas Price in the market, and the amount of usage that this point means is the actual amount of usage. In both figures, the supply curve has a vertical rising part, which is because the gas supply of the miners is limited by the agreement. When the supply reaches the upper limit of block gas stipulated by the agreement, no matter how much the bid is, the miners cannot provide more gas. too much.
The picture on the left describes the general situation, or the situation where the market demand is low. At this time, the market equilibrium The gas usage of the block does not exceed the gas limit of the block; while the picture on the right describes the situation where the market demand is relatively strong, the user wants a lot of gas, but the miner can only provide so much due to the limitation of the agreement, so the gas usage is equal to the block Gas limit.
It can be seen that when we assume that the supply curve remains unchanged, the "equilibrium point" can be used to describe the market demand Useful tool for situations.
After joining EIP-1559, the operation of the Gas market can be divided into 5 types:
A. The natural market equilibrium point is greater than the target gas usage and less than the max gas usage (that is, 2 times the target usage); the base fee is zero;
B. The natural market equilibrium point is greater than the target gas consumption, but less than the maximum gas consumption; the beae fee is not zero, but not so large that the gas consumption is equal to the target consumption;
C. The natural market equilibrium point is greater than the target gas usage, but less than the maximum gas usage; the base fee is not zero, and is large enough to make the actual gas usage of the network equal to the target usage;
D. The natural market equilibrium point is less than the target Gas consumption, and the base fee is not zero;
E. The natural market equilibrium point is less than the target Gas consumption, and the base fee is zero;
Readers should be aware of: (I) corresponds to a sudden surge in demand; (II) corresponds to The situation where the base fee is being adjusted (increased) after the demand increases; (III) corresponds to the situation where the base fee is adjusted and the network usage is approaching the target usage; (IV) corresponds to the situation where the base fee is being adjusted after the demand decreases The situation of adjustment (reduction); (V) corresponds to the situation where the base fee becomes 0 after the adjustment is completed after the demand is reduced.
Just adding two assumptions, we can analyze EIP-1559 (and Compared with the situation without implementation) whether it has created more income for miners:
(1) Hypothesis 1 : The target gas consumption of EIP-1559 is exactly equal to the gas upper limit of the block when it is not implemented;
(2) Assumption 2: The remainder drawn by EIP-1559 from miners and users, It will be transformed into the value increase of the block reward without loss (this is an obviously unrealistic assumption, but it is easy to reason; and after the reasoning is completed, if you give up this assumption, the conclusion will be obvious)
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If EIP-1559 is not implemented, the gas supply will be limited by the agreement, so The amount of Gas used is GL (block Gas upper limit), and the Gas price paid by users is P1 (Note: The reason why the price is not the level where the miner's supply curve begins to bend is because there is competition among Gas consumers ). The miner's income is area B + area C + area D + block reward. Consumer surplus is area A. If we implement 1559, because this mechanism allows the block to be enlarged temporarily (Hasu’s so-called “Slack Mechanism”), and the base fee is zero at this time, the gas usage is U, and the gas price is P2. At this point, consumer surplus is area A + area B + area E, which is significantly greater than area A. This is the benefit that Slack Mechansim brings to consumers.
But at this time, the miner's income is area C + area D + area F + block reward. Is area B larger or smaller than area F? Under the current mechanism, miners can collectively increase the block gas limit, so if area F is greater than area B, and the cost of coordination is low enough, miners will choose to increase the block gas limit. Therefore, we can basically conclude that under such market conditions, the implementation of EIP-1559 will reduce the income of miners.
Using the same method, we can also analyze #B and #C:
When the base fee starts to rise, but not yet high When the gas usage of the network reaches the target usage (ie #B), take the TIP level and TIP+BF level indicated in the figure above as an example. At this time, the supply curve (including the dotted line part) gives the tip amount that miners must pay to pack the transaction, but the base fee is not zero. Under the interaction of the two prices, although the user paid the tip+base fee, but The miners only get the tip, and the difference in the middle is the tax that is taken away. Similarly, if EIP-1559 is not implemented, the miner's reward is area B + area C + area D + area E + block reward, while if it is implemented, the miner will get area D + area E + area H + block reward*. The reason why it is block reward* instead of block reward is that the tax taken away by the base fee mechanism will also increase the value of the block reward through burning, and according to our hypothesis 2, this means This means that miners will essentially get area C + area D + area E + area G + area H + block reward. Consumers will get Zone A + Zone B + Zone F, mainly because they benefit from larger block space (assuming expanding block space to U, even without implementing EIP-1559, they can get the same benefits). As for whether the income of miners is increased or decreased, it depends on the size of area B and (area G + area H) whichever is smaller. (In my personal opinion, I think B is larger, because under the current mechanism, GL is the block size that allows miners to maximize revenue if the coordination cost is low.)
Similarly, if it is #C, that is, the base fee has been high enough to make the Gas usage equal to the target Gas usage (that is, the Gas upper limit when not implemented), Then the income of the miners will become Area E + block reward*, as for Area B + Area C + Area D, it is the surplus drawn by the base fee (tax system); according to Assumption 2, the actual interests of the miners will be Becomes Region B + Region C + Region D + Region E + block reward, yes, exactly the same as it would be without implementing EIP-1559. The consumer's income will also change back to area A, which is the same as the current fee mechanism.
As for #D and #E, as shown below:
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Assuming that U is less than the block Gas upper limit, the miners are under the current fee mechanism , the benefit is area C + area D + area E + block reward, and the user's benefit is area A + area B + area F. After the implementation of EIP-1559, assuming the base fee has not dropped to 0, then area B + area C is the amount burned because of the base fee. The miner's income will become Region D + Block Reward*, which is Region B + Region C + Region D + Block Reward. Whether it increases or decreases depends on the relative size of area B and area E . However, the benefit for the user becomes Area A, which is the other side of the Slack Mechanism coin. It is easy to see that area F + area E can be realized under the current mechanism, but after the implementation of EIP-1559, the benefits that cannot be realized because of the base fee, that is, the above-mentioned "net tax loss ".
If the base fee drops to zero, the benefits of miners and users are the same as under the current fee mechanism same.
To sum up, we can get several conclusions:
1. When demand soars, because EIP-1559 allows miners to produce blocks twice as large, consumers can get more benefits. But when the market demand falls, but the base fee has not yet dropped to 0, consumers must pay more expensive fees than the required payment level under the current fee mechanism.
2. EIP-1559 does not necessarily bring higher security. At least, in #C and #E, security will be equivalent to the current mechanism.
3. However, #C and #E are two static equilibrium points, that is to say, we either can’t just reach them in reality, or we can reach them A state that cannot be maintained for a long time. So we should pay more attention to the other states.
4. On the face of it, in #B, it cannot be asserted that EIP-1559 will reduce miners' income. But in fact, under the current mechanism, if miners find that the existing block gas limit cannot help them maximize transaction fee income, they can increase the block gas limit. This also means that larger blocks (EIP-1559) can't actually help them increase their income. The only case where we cannot extrapolate further is #D. At this point we really don't know which area B is bigger or which is smaller than area E . But at least, the user's income is clearly reduced.
5. All the above conclusions rely on assumption 2. If we further relax assumption 2 (and indeed we should, since, even in the crude quantity theory of money, deflation raises the value of each unit of money, not just the value of newly issued money), we can With great certainty: EIP-1559 will reduce the security of Ethereum.
EIP-1559 should not be implemented if we really want to implement a "minimum issuance rate" policy.
Four. Conclusion
In summary, I have proved that the current support for EIP-1559 does not have a solid scientific basis. EIP-1559 can neither make transaction fees more predictable (because demand is unpredictable), nor can it reduce Gas prices, so it cannot be said to create a better user experience. At the same time, newly emerging supporting opinions either misunderstand the operating principle of the entire ecology, or fail to provide a complete analysis to prove their opinions.
So far, no core developer has indicated a plan to implement EIP-1559 on PoW Ethereum, but 2.0 A similar mechanism may be implemented in Phase 1, the researchers said.
What I am more concerned about is whether PoW Ethereum will decide to implement this because of the current general support mechanism. If these opinions are just because the authors have not clarified the cause and effect, it is still easy to say. I'm more worried about someone knowing its impact and choosing to support such an unfair proposal because they don't belong to a group that would be harmed.
Again, I have great respect for all those who have invested intellectual resources on this topic. Without their voices, I would not have been able to advance my own analysis and write this article. I have also repeatedly emphasized that these words should have been said by someone, and no talent is needed, but no one said it, so I had to say it myself.
Finally, a little personal point of view. Since the history of mankind, there has never been a system that can stimulate people to engage in production more than the market economy, and no system that can reduce costs more than the market economy, because other systems have induced people to profit from non-production activities.
The blockchain world is no exception. If you look at the block explorer, half a year ago, the block utilization rate of the Ethereum network was still around 80%, and in the past month, it has been above 95%. Why? When the transaction fee is too low, many mining pools would rather pack empty blocks. But when the Gas Price soars, if you don’t package a transaction, you will lose 0.0x or even 0.x ETH, those mining pools that have not optimized their nodes and networks will face the tragic end of watching others eat meat and being abandoned by miners.
This fact points us in the right direction.
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