Ethereum Cat Herders are inviting the community especially #miners to address concerns with the EIP-1559. If you’ve questions, join the call on Feb 26 at 1400 UTC. Details in the announcement blog.
If you can not join the live stream, you can also leave your questions here and we will share it with the panelists.
You’re right. I ran the numbers and got .2% inflation as well. This does indeed indicate that Eth 2.0 would be deflationary, which opens up the whole can of worms that a deflationary currency is less likely to be used for it’s intended purpose (spending), which is unhealthy to the whole ecosystem. After all, if I told you 100 dollars would be worth more tomorrow than today, then you would think twice before spending your money on a candy bar. Currencies need to be inflationary for a healthy eco-system.
You seem to imply that Ethereum has no “accepted governance model”. It may not be a type of governance you are familiar with, the one you’d want, or even a type that can be fully grasped in a few sentences (if at all), but that does not mean there is no governance model. I’m also not sure what you mean by “accepted”, do you want everyone to sign a license or something?
You also seem to imply that a formalizing a governance model would give a way to resolve conflicts. But I would argue that formalizing a governance model means someone (or some group) would be in charge of formalizing that governance model, which would lead to conflicts like “who put you in charge?!” (also, hi S.E.C.!). Aside from that, I feel that all that formalizing governance would leave you with is very little gray area / wiggle room in times of conflict, some cemented form of hierarchy, and it inevitably becoming outdated, unfitting or downright hampering.
If you want something like on-chain governance, there are other chains out there trying that. If you want to run a company (“we at SKALE”) relying on license agreements and courts of law to enforce them, you are more than welcome to. I just don’t think we should try to make Ethereum be like that. Vague is good.
(Well, except that it leads to a contentious and vocal minority screaming “I demand to speak to your manager!” into a manager-less place typically filled with technical arguments)
I can’t believe nobody is talking about this. The consensus among economist is that low steady inflation is best for a currency. Deflation leads to inefficiencies and increases the chances of a liquidity trap.
A boon of cryptocurrencies in general (and arguable the reason of the recent impulse) is that we are independent from the central banks and their bipolar monetary policy of “print money whenever we feel like it”.
With EIP-1559, we go from the current predictable declining inflation (nearly ideal), to sheer uncertainty where inflation/deflation is the outcome of an unknown function of the network congestion over time.
That is a terrible monetary policy! As ethereum gets more popular, the burnt basefee increases, which causes an increase in deflation, so users are incentivized to not spent their ETH on DAPPs.
It essentially puts a hard asymptotic cap on Ethereum’s economic growth.
If you read all the crappy medium blogs written by proponents of this EIP you will find no sane economic rhetoric to support this change. What you will find is giddy propaganda talk such as "This is great for people holding ETH!!" or “If you hold ETH, you receive BASEFEE indirectly!!!”. Pure populism to convince the layman holder. Advocates of this EIP seem to have dollar signs (or rather, ether signs) for eyes and, as such, have no problem damaging ether’s usability as a currency as long at it pumps their bags.
The EIP sends an incredibly weak economic signal: plain ETH holding must be artificially incentivized using a deflation ponzi (else people might sell their ETH for dollars or euros, oh no!). The side effects being of course that the number 1 ‘product’ that is purchased using ETH (gas for smart contracts) is now less attractive and general use as a currency is discouraged (compared to those dollars and euros).
Make no mistake, being the first mover with smart contracts is the only thing that gives Ethereum any real value. The attractiveness of using a given cryptocurrency as a store of value is directly proportional to it’s name recognition and stable monetary policy. Bitcoin is orders of magnitude ahead on the first and, after this EIP, will also have the advantage on the second.
The worst part of this proposal is that there already exists a reward mechanism for people wiling to hold ETH, it’s called staking (rings a bell anyone?). As long as rewards for staking are sufficiently higher than inflation (which they are) there is absolutely zero need for an unconditional incentive to hold ETH. The only people that stand to benefit are those that have no plans to lock their ETH in a long staking contract but instead hold ETH short term with the hope of converting it to fiat when the price has risen enough: soulless traders and speculators looking for a quick buck instead of a monetary revolution.
The economic consensus seems to be that deflation causes consumer goods prices to fall, while business expenses are inelastic, and thus remain high. I’m fairly certain that it’s not deflation that causes unemployment, but rather malinvestment by companies who bet big on inflation and get rekt when there is rapid, uncontrolled deflation.
If EIP-1559 could plausibly be construed to promise steady inflation but actually result in sudden spikes of deflation, then the analogy to central banking might make some sense. If EIP-1559 could cause 16% of currency to disappear in the span of a single year, similar to M2 during 1931, then I would like to hear how.
“Economists agree that low inflation is the best target for a currency. Eth is a currency. Therefore Eth should have low inflation”. The issue with this statement is that its taking a derived result and applying it where it does not belong. Why is low inflation the best target? Because a currency should grow alongside GDP in order to prevent hoarding and ensure smooth circulation of capital. But what is the GDP of ethereum? The goal of Eth is not to be the world currency. Nor will it necessarily be the primary currency even within Ethereum. At one time, people would roll their eyes at every new token and ask why things are not denominated in Eth, now its basically taken for granted that protocols will have their own token. These tokens, in combination with stablecoins, can ensure the free flow of capital within the system.
Of course, I can’t speak for everyone for what the purpose of Eth is. But insofar as the goal of Eth is to ensure the security and stability of Ethereum, although I don’t know of any consensus as to what level of inflation is best, in my opinion there are two excellent benefits to slight deflation that scales with demand:
Well, many many projects have some type of a governance model where people vote. In fact, ETH is an exception of not having this.
By the governance model I mean defining the voting algorithm, and then voting.
Majority rules is something that Ethereum and Bitcoin both have pretty openly rejected as a form of governance.
This is incorrect reasoning. The current 8% of staker profits, is not 8% of ETH network inflation, but only about ~0.30%
Stacker profits are high only because of the low number of blocked coins.
Miners provide security to the network, but should not hinder development. A situation is now occurring where it becomes unprofitable for the average user to use blockchain Ethereum. High fees are hindering the acceptance of the network.
On the longer run, everyone loses; potential users will defect to faster and cheaper blockchains in transaction costs; Ethereum’s very leadership is threatened.
Which means:
Fewer users → Less ecosystem development and adoption
At the moment, miners are making a SUPER profits by “milking” regular users and essentially damaging the entire network.
EIP1559 will allow ETH1.x to scale in some sense now, before there is a transition to ETH2.0 yet. Miners were initially warned about the network’s move to POS. If you are a miner you should be prepared for this.
Well, Micah - How can Ethereum or Bitcoin reject anything ?
They are BYTES.
And how did they communicate this to you ?
This is a fair question! Attempts to introduce majority rules based governance into Bitcoin and Ethereum have historically not gone over well with the community, and importantly the core developers. Other chains have introduced majority rules based governance systems and some of them are very similar to Ethereum, so I think that there is a sort of natural filter where people who want majority rules governance use other chains, and those who don’t use Ethereum/Bitcoin.
This results in a sort of self-reinforcement of the ethos of the chain, and is why it is good to have multiple competing chains with different rules/governance systems.
1559 does not seek to address the high fees which we are currently experiencing. That is a scalability issue, which depends on software innovations in order to make state storage more efficient. The main purpose of 1559 is to reduce pricing inefficiencies caused by gas oracle’s inability to precisely track the minimum cost of inclusion as well as reduce inflation.
Forgive me if miners have stopped planning around the announced release dates for PoS. It will happen when it happens, and claiming that they should be prepared is absolute nonsense. Repeated failures to meet release targets for Eth 2.0 has eroded trust in these announcements. To get an actual understanding of when it will be ready, takes more effort than the average miner or user is willing to invest.
Well well 
The only way to build community is to try finding compromise.
It does not have to be majority rules governance.
There are many different ways to do governance.
You’re not quite right, EIP1559 involves increasing the gas limit per block to 25 million instead of the current 12.5 million, in addition to stabilizing the commissions. This scales the grid by x2 from the current values.
@Galena1227 was right. While 1559 means blocks can be double full, that’s a very temporary flexibility and the base fee will pretty rapidly increase to ensure they don’t stay that full. On average blocks will still use 12.5 million gas so no significant change in capacity to today.
Has any thought been given to the long term effects of deflation? Rising ETH prices may not necessarily be good as it weakens the base of ETH’s value, its usability. If a transaction costs 100 gwei to send and the price of that gwei doubles than users of ETH will be pushed to competing options. Deflation may be attractive in the short-term but in the long term it may leading to the weakening of ETH’s fundamentals.
Similar to how you don’t want the value of your currency to rise too high in international trade.
As miners would be facing a 50% loss in ETH this also means 50% less ETH is going to be available from miners on the market which combined with the fixed amount of ETH being staked could lead to liquidity issues. Especially as ETH is burned leading to lack of supply. We don’t want ETH to be too expensive for users, for instance if they are selling a product for $100 US and their costs to use the ETH network at $1, once that goes up to $2 or $5 they may wish to switch.
Does basefee have an RPC EIP? Thinking that might be helpful for wallets.
Is there a discussion about what replacing fee burning with spreading fees across blocks would look like? (sorry, have not read the 300 previous messages ;P)
I am particularly interested in what are the game-theoric differences.
