EIP-1559: Fee market change for ETH 1.0 chain

EIPs
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When I say “least amount possible” I mean “least amount possible in the given environment”, not the least amount possible given all possible theoretical environments and frameworks. A user who bids 1 ETH per gas can be confident that they won’t over pay by a significant amount under EIP-1559 unless an attacker burns far more money attacking the system than the user would lose (economic guarantee).

It isn’t about finding the absolute lowest price theoretically possible. It is about giving the user confidence that they are getting a “good” deal without them having to put in a huge amount of work/effort. Yes, they may be able to get a slightly better deal by playing the oscillations, or in a completely different fee system it is possible the fee they would get is lower. However, in 1559 they will get a “fair” and “good” deal regardless of their bid, which is where the UX benefit comes from.

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I’m sorry but saying that a system is optimal within the arbitrary limits imposed by that system itself doesn’t seem like an objective way to measure the merit of a proposal nor to understand whether it’s going to do more good or harm to the community, because it’s a purely self-referential statement.

E.g. to pick up your example consider a simplified alternative to this proposal that imposes a fixed base fee of 1 ETH per gas: That’s also the “least amount possible in the given environment”, should give great predictability and usability because it will leave plenty of free room in each block allowing transactions to be included instantly – Still a terrible idea because it fails to optimize any objective notion of transaction gas usage.

That’s only true if the base fee is in itself a good enough approximation of the real market price, which may not be the case for reasons other than an attacker intentionally disturbing the system (E.g. due to the lack of a sufficient stability trade-off as I was describing in the paragraph you quoted). Otherwise, even though individual users may not be overpaying relative to the base fee, they may be overpaying in absolute terms according to any objective definition of what a fair transaction price is.

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It seems unlikely that the currently selected algorithm would be so bad at getting close to the real market price that people end up over-paying by significant amounts. If you believe that this is the case, my recommendation would be to draft up a model that shows this. IMO, the usability benefits of EIP-1559 are well worth some small imperfections, especially since we can tune it after it launches once we start getting real world data (data that we cannot get prior to it launching).

I may still be misunderstanding, but I think your argument is basically that we cannot prove the algorithm is perfect right now, so we shouldn’t move forward with it. If that is a correct summary, then my response is that we should not let perfect be the enemy of good. This is doubly true when in order to achieve perfect we first need to gather data using an imperfect system.

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A compromise for the new pricing auction would be to start slowly, using it in say 1% of blocks. And then increase the percentage slowly.

This would also give people time to move to the new thing

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The expectation is that this will effectively be the case. When 1559 launches, legacy transactions will continue to be supported. It is likely that at first very few people will be submitting 1559 transactions, which means everything will proceed as normal at first. Over time, as applications and wallets upgrade to add 1559 support we’ll slowly see more and more people using it. If users don’t find it valuable, they’ll simply prefer wallets that let them continue using legacy transaction pricing.

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Pretty sure you meant to say if as 1559 is contentious will cause a community split and quite possibly a chain split.

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There are many possibilities on what will happen to Ethereum after EIP-1559 is implemented, and the only way to know for sure is to implement it. There are two things I know are certain, investors and miners both want to be paid. Apart from fan boyism, we are both investors, just coming at it from different angles. Miners provide a service, and investors provide an incentive. While it is completely possible that implementation can happen with both parties being happy, it is not the future I see for EIP-1559. My main argument for this is pure financial incentive. Investors do not want to be separated from their money in the form of fees, while miners want to be compensated for the service they provide. At the end of the day, it is not important what currency either party is involved in, they will gravitate to the currencies that work for their own personal use case. I do not mine Ethereum because it is something that I hold an emotional tie to, I mine because it is profitable to do so with the funds and equipment available to myself. If EIP-1559 is implemented, myself, and likely many other miners will migrate to where the new money is coming in. While I do believe Ethereum has reached a point it is so engrained and invested into it is not going anywhere, it does not mean it is safe from the whim of the people supporting it. If for whatever reason there was indication that Ethereum was not going to grow, or even hold its value investors would be running for the hills. It is the same way with myself, if there was indication that mining Ethereum was no longer profitable, I would switch algorithm to whatever was profitable. While there may be enough diehard Ethereum miners to keep the system going, the network performance and security will be greatly degraded. There are already complaints within the community on the slow performance of the network. With an exodus of miners, there would be even less protection from 51% attacks. For example, a mining pool could decide based on the number of miners leaving the network they would have the hashrate to successfully implement a 51% attack. With current complaints of network speed, and precedent set in Ethereum classic of 51% attacks, I do not feel that EIP-1559 will be good for the Ethereum community. Like so many other things in life people are only happy when money is being spent and people are getting paid. I do feel there is room for a middle ground, it will have to be competitive with the rest of the cryptocurrency ecosystem.

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Maybe it seems unlikely to you, but I’ve pointed out a number of reasons why this proposal could be disadvantageous to end users, particularly when compared with the simplest possible alternative of increasing block size. Why would it seem unlikely to you that those disadvantages will outweigh the benefits if nobody has bothered to model quantitatively how this proposal compares against the alternatives?

I’m glad to help with that but I don’t think it’s my responsibility to provide evidence that this proposal provides a significant benefit to the community, considering the amount of controversy it has created.

No, my argument was the very opposite of that: I think that it’s not only possible but badly needed to provide some sort of quantitative evidence that this algorithm can perform reasonably against the alternatives.

The first step to do that would be to agree on a more precise definition of what you mean by “improving usability” of the network, otherwise your statement that this is going to have usability benefits well worth the imperfections is fully unfalsifiable. You have repeated half a dozen times that it’s not gas prices that you want to improve with this proposal, but then when I asked you to define “improving usability” more precisely you came back with an answer that basically boils down to minimizing gas prices for a narrow subset of the user base within some constraints on the transaction inclusion delay. Is it just me or that’s a bit of a contradiction?

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I agree with you that the onus is on the proposer/champion to convince people that a proposed change will be a net improvement for users. In this case, the majority of people I speak with who fully understand how EIP-1559 works see the benefit it provides. Those that don’t are usually compelled by the illustrative story in A Tale of Two Pricing Schemes. A User Story | by Micah Zoltu | Coinmonks | Medium and other articles.

It is still unclear to me why you don’t find these usability improvements compelling while others do, and perhaps it is because you have some information that others don’t or you recognize a fatal flaw that others do not. However, we have gone back and forth several times and I’m still struggling to see a fatal flaw or new information in your arguments.

You have made a compelling point that over any given window of time gas used will be higher if the base fee ends the window higher than it starts the window, and inversely gas used will be lower if the base fee ends the window lower than it starts the window. This isn’t a point I had previously considered and I do very much appreciate you bringing it to light.

You have also made a compelling point that if the price of ETH declines while the marginal demand (denominated in the thing the ETH price is declining relative to) for block space remains stable, then we will see potentially very large windows of time where the base fee ends significantly higher than it started, which given the above would suggest a net increase in gas used!

I very much value you bringing up both of these points, and I think they are important to consider when evaluating EIP-1559, and we have discussed them a bit on the Ethereum R&D Discord server since you brought them to light. However, I do not personally believe that these points are catastrophic enough to cause the perceived benefits of EIP-1559 to no longer be worth the risk.

Increasing the gas limit guarantees a permanent (until the gas price is changed again) increase in the rate of state growth. Given the points I mentioned above, EIP-1559 introduces the possibility of an increase in the rate of state growth, and that state growth is constrained long term to as long as the price of ETH declines relative to the denominating currency people use for determining marginal utility of transaction inclusion. Also, if the price ever rebounds, the state growth will “undo” itself.

So while both situations have state growth as part of them, the risks of state growth are quite different, which is why I don’t think “just increase the block size” is comparable. Also, as I have mentioned before, I don’t think increasing the block size solves the same problem, but we don’t seem to be able to come to agreement on that and I’m not sure how to resolve that at this point.

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I can see why people find that story compelling, I just doubt that it’s the whole truth, it paints a pretty grim picture of the status quo while failing to acknowledge the potential disadvantages of this proposal to end users. It’s not surprising that people find it so convincing but that doesn’t look like a material argument to me.

It wasn’t my intention to point out any fatal flaws so far, nor to get people to rule out this proposal as useless without more careful consideration. The points you are referring to above regarding the connection between major price changes and state growth weren’t intended to show any sort of catastrophic flaw, but simply as an example demonstrating that the effect of this proposal on state growth is far less deterministic than people seem to think.

I think the key point I have raised is that there is some potential for this proposal to increase the gas prices that a significant portion of the user base are paying today. The assumption that this is going to improve usability relies on this mechanism not frequently reverting back to a first-price auction of miner tips (which requires BASE_FEE_MAX_CHANGE_DENOMINATOR to be low enough), and on the base fee being a stable and accurate approximation of the real market price (which requires BASE_FEE_MAX_CHANGE_DENOMINATOR to be high enough). Whether that’s going to be the case for any value of BASE_FEE_MAX_CHANGE_DENOMINATOR to a degree satisfactory to most users is still unknown, and judging from the information we have so far it might very well be that a small increase in the block gas limits delivers a usability improvement superior to this proposal.

To me the question is whether having a large confidence interval on the long-term state growth is better or worse than a small confidence interval with some certain but minor state growth. I’d argue that if the latter can be shown to provide greater benefits to the user base or if (as you were arguing before) exceeding a certain threshold of state growth for an extended period of time were to lead to unmanageable consequences to the network, the solution with the smaller confidence interval should be preferred.

That should be approximately the case, but not quite. The base fee adjustment formula proposed here is not fully path-independent, so there will always be some minor but permanent state growth with this proposal even if the base fee returns to the same level as it was before. Quantifying it isn’t straightforward without knowing the frequency and amplitude of such price oscillations beforehand, so we are still left with some significant uncertainty in the long-term state growth with this proposal, even under the unlikely assumption that the ETH price will always keep coming back to the initial level.

I think that the root of that disagreement is the lack of an objective, quantifiable definition of “improving usability”. So, what is the problem that this proposal is trying to solve, in quantifiable terms?

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One interesting thing to consider if miners can collude to keep base fee at zero, (this will mean they will pocket all of the money paid)

If a large portion of miners keep the blocksize less than optimal, isnt it true that they can bring base fee to zero?

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Yes, if they engage in a censorship attack (which is very obvious to external observers. See What does a Miner revolt look like? | Coinmonks for details on the general idea (not specific to 1559).

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A way that fees can be reduced is restructuring all of EIP 1559, especially having to do with stakers insane profits. 8% returns, this will severely inflate the coin for all users, with exception of stakers.

The burn fee is just a gimmick to hide the true inflation due to stakers returns.

This EIP does nothing to solve the gas issue, it is just a restructuring of profits from PoW to PoS which should just be held off on till ETH 2.0,

The true big push for EIP 1559 is from big money, now that they are staked up they want the miners profits now.

I would be interested to see accurate numbers of how inflation from stakers will effect the economy of ETH after 2.0. Will the burn be enough to cover 5% returns? When stakers are maxed at projected 2-3% returns, how will the burn fee actually counter this when stakers are locked in and that ETH is removed from circulation just creating more ETH at the cost of its users. So in theory the fee system turns ETH from a free system (gas fee for transactions) to a pay to use system (gas fee+base fee+burn) which in turn is paid to the stakers.

I understand 2.0 is coming and the change from PoW to PoS is happening, just think this EIP1559 is just a cop out to rush more money to stakers from miners under a disguise that its beneficial to the userbase.

In regards to the “burn fee” in any implementation is just a scam to profit stakers and hide the inflation they are creating.

Stakers should be making no more than the block rewards divided amongst themselves, they want to burn others ETH while giving themselves ~8% as of today.

Very hypocritical everyone is against the miners while nothing is being said about the insane profits stakers are making; while at the same time wanting to burn your ETH. Telling the community its good for the system, its only beneficial to stakers.

People complaining about gas fees are also not realizing the fees seem higher because its paid in ETH, while ETH makes all time highs of course the price in USD is going to be higher. 100 gwei is 100 gwei no matter if ETH price is $100 or $10,000.

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Yes I’ve addressed your last point in my tweet response to @timbeiko https://twitter.com/cointersect/status/1355227888157478912

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If the amount of inflation due to staking is insane as you claim, then which word describes payments to miners which are many times higher? Would “unfathomably, exhorbitantly, disgustingly, disturbingly high” be sufficiently more extreme than simply “insane”?

We can all agree that getting rid of mining should be the top priority when it comes to limiting inflation, just based on the math. And the sooner the better.

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The root cause of the problem is there is no way to agree since ETH does not have on-chain governance other projects have.

Without a governance model decision-making is imitation of democracy, which naturally leads to a conflict.

Note, that the same people could find a compromise if a governance model existed.

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Usage fees are a function of block size, which cannot be increased due to state-growth concerns. L2 usage will require L2 solutions since we cannot scale the world computer without further development into how states are stored or accepting that nodes are outside of consumer reach.

You haven’t bothered to do any actual math on Ethereum inflation under proof of work, currently Ethereum has an annual inflation rate of 4.4%, which will decrease as time passes since issuance is currently stable. Staking returns are currently projected to double that.

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You appear to be getting two different percentages mixed up. PoS is currently yielding 8% reward or so to validators, and this comes out to something like 0.5% inflation (double check my math on how much inflation it is, I ran the numbers a while back and I think that is what I came up with but I may be remembering wrong and off by a few 0.1%s).

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This is beyond the scope of 1559: Ethereum doesn’t have on-chain governance by design. If that’s a feature someone wants, there are plenty of alternatives that offer it.

Core devs can bundle an update which includes an EIP and it’s then up to the community to decide whether they want to adopt that upgrade. If there are disagreements, the network may fork. This is “a feature and not a bug” in Ethereum.

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Hey Tim,

I understand that EIP-1559 cant decide ETH governance.

I am just remarking, that pretty much any conversation in the absence of accepted governance model leads to a conflict of people, that could arguably find compromise if a governance model existed.

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