EIP-1559: Fee market change for ETH 1.0 chain

As a developer I have always found Ethereum fascinating and always wanted to support the project either by developing based on it, investment or mining.

However this proposal, is kind of opposite what Ethereum purpose is. It’s turning its back on the miners, the community who made the network come so far!

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Ethereum is supposed to be a world computer, not a store-of-value-ponzi-scheme. The EIP, as it is now, reeks of greed and does nothing but damage Ethereum’s reputation.

Solve it by removing the basefee burning, it is unnecessary! The remaining changes still bring the projected network benefits!

From the EIP:

An important aspect of this fee system is that miners only get to keep the miner bribe. The base fee is always burned (i.e. it is destroyed by the protocol). Burning this is important because it removes miner incentive to manipulate the fee in order to extract more fees from users. It also ensures that only ETH can ever be used to pay for transactions on Ethereum, cementing the economic value of ETH within the Ethereum platform. Additionally, this burn counterbalances Ethereum inflation without greatly diminishing miner rewards.

Trying to (disingenuously) create deflation while surrounding it with phrases such as “cementing the economic value of ETH” leaves a really bad taste in many people’s mouths. Also, language wise, the term “miner bribe” really solidifies the preconception that developers absolutely detest miners (more commonly tips or gas premium).

Not to mention that (trying to) create deflation in this way would actually hurt Ethereum:

  1. With all the Ether currently being locked in by stakers/investors/HODLers we need the liquidity! The amount of Ether available on exchanges is already decreasing rapidly [1].
  2. Low exchange liquidity + Rising prices + High ‘investor’ transaction volume -> No available Ether + No Transaction-space -> No DApps -> Just another shitcoin. The more Ethereum 1.0 is pushed to become a ‘store-of-value’ (by EIPs like this) the harder it becomes to be a world computer. More investor transactions mean less DApp transactions on an already congested network.
  3. Trying to unnecessarily nickel-and-dime miners out of their expected reward seems like a really bad idea. From what I have seen, the majority of the miners seem to have already accepted that mining stops once PoS is deemed ready. Going to war with them now while they are still needed for the final stretch to PoS is a needless risk.

And finally, the EIP projects changes without actually arguing in favor of them. The final sentence of the motivation part:

Additionally, this burn counterbalances Ethereum inflation without greatly diminishing miner rewards.

Seems to imply that counterbalancing inflation is a good thing(?), but it gives no arguments! I thought this was an Ethereum Improvement Proposal. In fact, from the “security considerations” section:

By burning the base fee, we can no longer guarantee a fixed token supply. This could result in economic instabality as the long term supply of ETH will no longer be constant over time. While a valid concern, it is difficult to quantify how much of an impact this will have.

“It is difficult to quantify how much of an impact this will have”, but we are pushing for it anyway LOL! It is not hard to see that the only tangible benefit of deflation (or lower inflation) is for entities speculating on the price of Ether. The basefee burning should be moved to a different EIP entirely (Working title: Let’s create deflation to pump our bags!).

If pushing for monetary changes masked as network improvements is the new standard then we might as well drop the pretense, rename Ethereum to ‘Bitcoin2’, replace this forum with a meme feed about ‘Mooning lambo’s’ and start shouting Etherconneeeeeeeeeeeeeeeeeeeeeeect.

Thank you for listening.

[1] https://cryptoquant.com/overview/eth-exchange-flows

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Don’t turn your back on the people who helped you get this far! I oppose fee burning.

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Here is a flashback to ProgPow discussion ACD #82. I have bolded the words that were updated for 1559 terms. Amazing how this fits also!!!

Defi people are a bunch of profit-seeking yield farmers lobbying the core dev political committee to get what they want – full stop,”

“A hard fork is not just a technical process,” said Martin Koppelmann, founder of open finance startup Gnosis. “A hard fork means creating a narrative around it – convincing 20,000 people at the same time that this is the best thing to do right now.”

… in voicing his concerns. Compared current EIP-1559 tensions to 2017’s bitcoin (BTC) civil wars, which led to the creation of bitcoin cash (BCH). Tweaking the Ethereum Fees isn’t quite worth a chain split…

The common anti-1559 argument centers on the transition to Eth 2.0 and its new Proof-of-Stake (PoS) consensus algorithm.

Under PoS, mining ether (ETH) will become a thing of the past. Defi antagonists think addressing the current Proof-of-Work chain when the community is nearing its major switch to PoS is superfluous, if not dangerous.

“We should focus on PoS and communicating the transition to PoS where mining rewards are decreased over time,” said Koppelmann…

These quotes and statements WILL be used against you in the coming implementation discussions of EIP-1559 and question WHY it is necessary to implement before POS when we are now 1 year closer than this discussion that took place on 3/2020.

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Miners have kept eth alive, and it seems like we are getting weeded out. Pos, reduction of payment. This makes me think that development is ungrateful for all the miners that has kept this coin alive. Once pos is running it will be the end of eth for me.

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Some arguments against fee burning

Five arguments against fee burning

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Less than 3 days left on the vote and EIP-1559 is going to fail the Ethermine pool. Tonight I spoke with the 1559 developers and they indicated they would be willing to entertain the idea of combining or letting 1057 release first to prevent a community split. As shown below they are compatible, this is a step in the right direction. Here is a snip our conversation and have asked him to bring this up at the next 1559 meeting.

@gcolvin this is the “break glass moment” the devs agreed to for 1057 implementation and network security. Combining EIP-1559 with EIP-1057 seems like the most logical way to prevent the GPU miners from causing a chain split. It will be a win for the miners and defi communities!

In 3 days Ehteremine will join the list of pools opposing 1559 and will be voting against it in the current form without EIP-1057

stopeip1559.org

I don’t remember seeing this in the chat, and I’m actively against any sort of riders. If 1057 is worth including on its own, then it should be included. If 1559 is worth including on its own, then it should be included. If both are decided to be included they could be included in the same hard fork or different hard forks.

What we should not do is include an EIP (such as 1057) as a means of buying votes for an unrelated EIP (1559). This leads to a pretty degenerate form of governance like you see in many modern geographic governments where a governance change is a bundle of dozens of different unrelated changes that were all required in order to buy votes.

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Totallty agree that ETH needs better governance.

We need a reasonable governance structure, where everyone’s opinion is heard.

This includes miners, dapp developers, token holders, etc.

In particular, what needs to stop is talking to miners in a disrespectful way, neglecting and victimizing them.

Miners play an incredibly important role in the network. They are good people investing their own money. If there is a conflict of interest of ASIC vs GPU miners, a compromise should be sought

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I’m a little surprised not to see more discussion about some good points people like veox and editor-Ajian have raised above regarding the economics of this proposal.

To put it succinctly, whether this proposal is accepted or not, the price of transactions during a time of congestion is going to continue to be driven by the equilibrium conditions between supply and demand for block real estate. Assume, for instance, that at a time of congestion there are 10x more users in need to submit urgent transactions than there is room for in the subsequent blocks. As is the case now, users will have no choice but to compete with each other, hiking up their miner fees in order to make sure that their respective transactions are executed timely, causing the gas price to go up until all but a tenth of them are priced out, i.e. until the equilibrium between supply and demand is reestablished.

This new equilibrium price is only dependent on the utility of executing a transaction to the individual users, the amount of ether they have to spend, and on the available supply of block space (AKA its gas weight limit). It’s fully irrelevant how we designate the different components of the transaction fee (base fee, miner tip or bribe), the equilibrium gas price during a period of congestion is going to be the same for a given level of supply. Even more irrelevant for the equilibrium price is what eventually happens to the different components of the fee after it leaves the user’s wallet: Whether it’s burned, transferred directly to the miner or pooled in order to create a more stable mining incentive.

That brings me to the aspect of this proposal which IMHO is likely to have a significantly positive impact on transaction prices: The increase of the block gas limit. There is no doubt that greater supply of this scarce resource will alleviate gas price surges during times of congestion, so that’s definitely a welcome improvement that’s likely to benefit most of the community.

But as @kladkogex and others have pointed out earlier, I fail to see the logical necessity of conflating the increase in transaction capacity (which in itself would likely be acceptable and welcome to most people in this discussion) with a fee structure change (i.e. the breakdown into base fee and miner tip, including a rule for calculating the former built into the protocol which might arguably deviate from optimality) and a monetary policy change (i.e. the decision to burn that fraction of the transaction fee instead of giving it to its current beneficiary). No wonder this has turned out to be rather controversial.

I found @vbuterin 's paper /Blockchain Resource Pricing/ quite helpful to better understand the motivation for those changes, but it still seems unfortunate to me that this is being done as a single all-or-nothing proposal, because each of the points I mentioned above has potentially far-reaching implications (e.g. due to the delayed nature of the base fee computation it can conceivably lead to an increase in gas prices on the average, relative to a network with comparable capacity which doesn’t impose base fees, in stark conflict with the general intention of this proposal) or rely on assumptions that are difficult to verify, either experimentally or in a simulation (e.g. if my understanding is correct the primary motivation for moving away from a gas supply cap in favor of a set gas price seems to be the promise of better economic efficiency under the assumption that the marginal social cost has much lower slope in absolute value than the demand function, this is however exceedingly difficult to test due to the non-linear behavior of the social cost function, and it wouldn’t be unexpected for the opposite to hold true past a tipping point that allows a critical level of centralization to be reached that enables a large-scale attack to be committed on the network, not unlike the behavior of the social cost function of carbon emissions @vbuterin mentions in his article).

If we have reasons to believe that such a catastrophic tipping point won’t be reached within the gas limit range [Wmax,Wnewmax], maybe there is no reason for the increase in block capacity everyone is waiting for to remain blocked by the more controversial/problematic bits of this proposal (Incidentally such a simpler change bumping the gas limit to Wnewmax alone would deliver lower gas fees than this EIP on the average, since no base fee would be imposed to the user anytime).

If people consider that the sudden jump to Wnewmax=2*Wmax would run the risk to overwhelm full node administrators maybe the gas limit could be increased by a more modest fraction while still delivering gas prices close enough to this proposal. Or a simpler mechanism could be implemented to provide the guarantee that the average block size never exceeds Wmax while still allowing comparable elasticity to this proposal, by carrying a running (e.g. exponential) average of the gas usage per block and requiring valid blocks to maintain it below Wmax (which would have a far more deterministic behavior than relying on market feedback mechanisms in order to achieve a similar effect).

Apologies for the long reply, I truly did my best to keep it succinctly, maybe another symptom of too many things going on at once here :wink:

It is not hard to argue that EIP-1559 is exactly this though. The basefee burning is not a requirement for the benefits that EIP-1559 brings. By including it in the EIP without argument, while keeping the main focus of the EIP on the auction/network improvements, it gives the impression that it is somehow a necessary part. It is the exact same style of degenerate governance that you describe: Fill a proposal with positive changes (UX improvements, better auction efficiency, variable block size, etc.) then slip in an unneeded personal gain at the end (basefee burning).

The paper by Tim Roughgarden literally proves that EIP-1559 with the -Smoothed Mechanism (where block rewards are still effectively paid to miners, just blocks later) provides the exact same benefits as ‘vanilla’ EIP-1559.[1, page 41, section 8.3.2].

In fact, the same paper places a suddenly very relevant caveat by EIP-1559 as it is currently proposed. I am just going to paste the wall of text because more users on here need to read this (from page 37, section 7.6 (emphases mine)):

Because of the burned base fee revenues, many miners appear to view EIP-1559 as taking away some of their profits and handing them over to ETH holders. For example, of the nine miners responding to a questionnaire by Beiko [12], six wrote that “they would not implement it under any circumstances.” This strong negative reaction suggests that EIP-1559 may galvanize miners to sustain collusion to a degree not yet seen under the status quo. An immediate issue is miner adoption, and the plan for the deployment and acceptance of EIP-1559 should be explicitly discussed. For example, can the Ethereum Foundation effectively dictateits use? Or is the plan to first secure support from major projects built on top of Ethereum (e.g.,the USDC stable coin), thereby forcing miners’ hands? Or should further support from miners besought out directly, and perhaps explicitly incentivized? A second concern is that the 1559 mechanism’s fee burn could change the norms around what types of miner collusion are culturally acceptable (e.g., coordinating on a new maximum block size) versus unacceptable (e.g., a censorship attack). For example, imagine that miners coordinated their actions to avoid the base fee but otherwise acted as in a first-price auction with a maximum

People here need to get some sense, this collusion has already started. Miners are already slowly banding together and EIP-1559 has not been officially planned for inclusion in a hard fork yet. Imagine the shitstorm when it is.

The conclusion is obvious: EIP-1559 should go forward with the -Smoothed Mechanism. Risking delay (or even rejection) of all the great improvements that the EIP brings on something as contentious as basefee burning while it is not a requirement is just bad governance.

After this is done, and the EIP-1559 benefits are locked in, people are always free to make a new EIP where they propose basefee burning again. Then we can have a proper discussion where it is actually the main topic from the start, not some hidden afterthought.

[1] http://timroughgarden.org/papers/eip1559.pdf

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  • The base fee is required in 1559 to solve the UX problem of gas price estimation.
  • The base fee cannot go to the miner of the block because that creates an incentive misalignment.
  • The base fee can be burnt, or it could be sent to a dev fund, or it could be distributed to future block miners.
  • Burning is incredibly simple.
  • Distributing the base fee to future block miners is quite complicated.
  • Burning has a minor benefit that it gives the core developers and community more precise control over the amount we pay for security/hashing power.
  • If we believe that it is necessary to pay miners more (for any reason), we can do so via increased block rewards which is very easy.
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IMO EIP-1559 should be split into two EIPs and they have to be discussed separately.

At SKALE we already implemented a price model essentially identical to proposed by EIP-1559.

In SKALE implementation all the fees go to block proposer (miner). Nothing is burnt.

Fee burning should be a separate EIP because it is highly questionable.

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I don’t buy the UX argument:

At the end of the day, all users who want their transaction confirmed will have to pay a “small” tip, at least if the gas used in blocks is around 50%.
Otherwise we are assuming that no one is in a hurry, everyone pays just base fee, no txs get mined, the base fee drops and the miners include those transactions, which is not only an unlikely scenario but also highly inefficient.

Under those assumptions, we are in the same situation as before. UX is complicated because you have to include a tip, and the tip market becomes the new fee market. The only difference with the current model is that some of the fees are burned, which could be good, but we are bundling a bunch of benefits which may not be accurate.

My favorite quote for 1559

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I disagree with this. Tipping to waiters as a “must” only exists in the US afaik, and no one understands why. Waiters get regular salaries + tips (if customers want to tip) in real life too. So, miners already get a block reward for their hashrate, paying for the transaction fees is unnecessary. This even causes fluctations on the hashrate because unlike waiters, miners are not securing the ETH network if there’s another profitable chain that they can mine on.

So it’s more like “i work as a freelance waiter, i serve to whoever pays me more”. Stabilizing the block reward would actually stabilize the network too, at least that’s what I think.

It is in fact a perfect analogy.

  1. Mininum wage is the base fee.
  2. Tips are extra pay a waiter recieves and are variable based on a number of market dynamics.

No need to overly complicate it. This is why it is called a tip. The point being when a majority of payment for finding a block is being paid in the form of a tip and then burning it in front of the miner is a slap in the face to the miner.

How is “tips exceed salary” is a normal thing? Latest block I see right now has 2 ETH block reward + 2.20 transaction fees. https://etherscan.io/block/11687156

We have seen the transaction fees well exceeding 6 ETH per block. No need to argue more. If a waiter gets $2K salary + $2K to $6K tips, and when tips are going to get removed, can’t sustain their lifestyle, perhaps the salary itself should be discussed.

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I think proponents of fee burning may think that people are machines that are following economic laws.

This is not really true. People are human beings.

What the waiter analogy above illustrates is that people are offended, they feel used.

Small guys invested money in GPUs and whales burn fees to become even richer, because they know the token price will go higher.

It may go higher short term, but long term will alienate community and hurt decentralization.

People do not like it. This is psychology, not economy.

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Every single POW coin pays miners this way. 1559 is trying to take this away because recently people have figured out how to “game” the system with high frequency transactions (they call it yield farming) and want to remove something that has been in place since day one so they can make high frequency transactions more profitable.

Sound familiar, yes you guessed it, this is the wallstreet crowd and they want to manipulate the system here just like they do on wallstreet with millions of transactions a second, but here they refuse to pay for the increase in transactions that they are perpetuating for THEMSELVES, even though the cost of doing it on Ethereum is far less when compare harware costs.They don’t need huge server farms that are as close as possible to the exchange…etc

In the end it will be their greed that brings them to the same point they pushed the miners to with 1057. If they had only let 1057 be implemented based soley on its technical implementation, without them threatening a community split, we would be silent now. Now 1559 will meet the same fate and will not be implemented due to a community split and quite possibly a chain split.