Why should we make miners prefer the premium and hate the base fee?

In EIP-1559, all the base fee is burned and all the premium goes to the block producer. Because of this asymmetry, there is a strong incentive for the miners to make the base fee zero in order to fall back to the previously-used first-price auction mechanism.

As far as I understand, for all the different reasons discussed for burning fees, there is no difference if you are burning either the base fee or the premium. What happens if we burn x% of both the base fee and the premium? I don’t want to get into the fight about burning the fees but if you want to get the same burning effect as EIP-1559, it is enough to set x equal to the average ratio of the base fee to the total fee. Still, ETH would be deflationary, and forging transactions would be costly for miners, etc.

The difference is that because of the same x% rate, there would be no substantial difference between the base fee and the premium for the mining community. Why should we care? If 51% of miners hate the base fee so much, there is a very easy 51% attack on the base fee reverting the fee mechanism to first-price auctions. 51% of miners just bring the fee down to zero and then they will never mine more than target full blocks and collude to make any such block orphan. This is a Pareto optimal strategy for the mining community and even though it is not a Nash equilibrium, it doesn’t sound impossible considering the recent news.

In summary, EIP-1559 makes the mining community love relatively low base fees which in turn result in over-loaded full blocks and network congestion. Then let me ask again! Why should we make miners prefer the premium and hate the base fee?

3 Likes

Any defector from this strategy will be more profitable than a miner participating in the attack for as long as the attack continues

ensuring the miner of a block does not receive the base fee is important because it removes miner incentive to manipulate the fee in order to extract more fees from users

1 Like

That’s why I said this is not a Nash equilibrium but a Pareto optimal strategy. And it needs 51% of miners to join forces to make any such block orphan. I’m not saying that it is very probable but my point is that the symmetric structure does no harm while removing this incentive altogether.

True but at the same time, it creates the incentive to manipulate the fee in the reverse direction (make the base fee smaller) in order to extract more premium from users. The difference is that if we utilize the symmetric version, the first kinds of attacks trying to increase the base fee cannot happen because x% of the base fee is being burned and it is still costly for miners to forge transtions (your point is resolved). Moreover, the other types of attacks to decrease the base fee won’t happen because there is no incentive for that (unlike right now under the current version of EIP-1559).

1 Like

As you say, improbable. And fully addressable through additional measures if necessary. That is the agile way.

1 Like

The problem is that all of those “additional measures” have a cost to the network. As @mtefagh has shown here and in the main EIP-1559 thread the same safeguards in place meant to prevent miner collusion can be taken advantage of by users in order to manipulate the price, and as I have shown in my recent comment the delayed accounting of the base fee necessarily leads to economic inefficiency, which wouldn’t necessarily be the case if miners didn’t have a perverse incentive to manipulate the base fee as @mtefagh is suggesting in this post.

In addition the “additional measure” of burning the base fee comes at the cost of roughly halving the price that an adversary needs to pay in order to 51%-attack the network, as we have discussed at length in the main EIP-1559 thread. And more importantly, none of these additional measures remove the perverse incentive for miners to simply censor and shut down the EIP-1559 fork, which would also get the base fee out of their way but, unlike the attack described in this post, would be a Nash equilibrium, since defecting miners would have an incentive to join the coalition in order to prevent their block from being orphaned eventually.

2 Likes

Perverse incentives don’t matter if they’re overcome by non-perverse incentives. Everything has a cost; that’s not an argument.

replacing the formula with an exponential curve (or at least a degree-2 Taylor approximation thereof) to cut that down to <0.1%, though that can be done in some future fork

The perfect shall not be the enemy of the good. The show must go on. Perhaps bitcoin is more your speed

Again, assuming that every 12-year-old’s gtx 1060 is for rent to attackers on short notice for marginal increase in profitability is the wrong assumption

It is an argument if the cost of something outweighs its benefits, or if someone has some idea to potentially avoid that cost, as is the topic here.

That wasn’t my assumption. A 51% attack is a realistic scenario we should keep in mind given the existing mood and the historical precedent of 51% attacks on blockchains with minority hashrate – And yes, the London fork could become one of those if it fails to gain enough support from the miner community leading to a split of the network.

I’m pretty sure Ethereum has been and continues to be the big swinging dick in terms of Ethash-capable devices. Bitcoin had extremely compelling ideological and practical reasons to split, and Bitcoin Cash still got absolutely dumpstered. Why is past not prologue here?

It could very well be, possibly with the EIP-1559 fork on the losing end.

1 Like

herp derp okay. have fun creating an Ethereum Non-Classic Classic Foundation that eclipses the real foundation

That’s not what we’ve been proposing to do here, seems like another straw man argument from you. The fact that the potential adversaries aren’t legally organized as a competing foundation doesn’t eliminate any of the risks the EIP-1559 fork is facing, many things can still go wrong without the adversary being officially registered as a foundation.

1 Like

It would be great if a BCH or an ETHNCC (Ethereum Non-Classic Classic) could achieve legitimacy with zero git commits, zero marketing budget, zero lawyers, zero contacts at major media organizations, zero Mark Cubans, zero resources of any kind. Just pure ideology. But it is not the case.

@esaulpaugh, I don’t know why you keep bringing up the matter of creating a parallel network, as if it were necessary for an adversary or a group of coordinated adversaries to do such a thing in order to veto or severely disrupt the deployment of the EIP-1559 network via e.g. a censorship attack or the various base fee manipulation attacks we’ve been talking about. You’re free to go and create such a foundation if you want to but it seems fully irrelevant to this topic.

2 Likes

You said the 1559 fork could be “on the losing end.” That implies a winner that is not the 1559 fork. In the context of Bitcoin Cash and Ethereum Classic that means a parallel network.

Well - it seems that if 51% of the miners refuse to mine on top of any branch that includes defector blocks, then defectors will lose money.

1 Like

A parallel network is a possible outcome but not the only conceivable one, another potential outcome is most of the hashrate of the EIP-1559 fork transitions away from it and its security is compromised, causing it to disappear due to the user base losing confidence in it. Or alternatively, the EIP-1559 fork could become the main network, but users and miners start gaming the base fee computation algorithm for profit to the disadvantage of most non-strategical users, reversing any of the promised usability benefits.

1 Like

Something that hasnt been touched on, there is the possibility of miners being used for attacks without having knowledge of the attack, or the vector.

Even if you know your part of an attack, but no one except a central entity (nicehash, pools) knows the vector, nobody can defect, since nobody knows the vector, and hence nobody knows whether it is more or less profitable to defect.

Further, if this method is combined with a 51% censorship attack of any hash not following this method, it would become rational for all miners to join the attack, since the censored 49% would be making nothing otherwise.

Defectors are only more profitable if they can mine at all, if miners achieved 51% to nuke base-fee, why wouldn’t they censor the 49% not following their method? The same percentage of hash is necessary to implement both attacks, and there is no reason you cannot combine attacks.

Nicehash miners are for all intents and purposes unable to defect, given they are unable to deduce they are attacking in the first place. Pools could also rather easily implement a similar strategy that could keep their miners unaware.

Its not even necessary that they’re unaware, if you have 51%, you can shout from the rooftops that your censoring the other 49% and only those who nuke base-fee can mine, within hours, 95%+ of hashrate would be part of the attackers, rather than be censored.

I dont see why the devs only consider single attacks on their own, combining a 51% censorship attack with the base-fee lowering attack would create a Nash equilibrium where its rational for all hash to join the attack: It boosts their profits, by lowering base-fee, AND it keeps them uncensored. In this event, only irrational miners would continue mining normally, since they would be censored.

There isn’t an easy solution once an attack begins either, nor is there a guarantee that it will be announced at all.

For example, mining clients could simply choose to implement that themselves, a large portion of hash uses closed-source mining software which could easily do such a thing while leaving miners completely unaware even. What’s interesting is its actually rational for all miners to do this, since releasing a client without that modification lowers profit for 0 gain (irrational), while releasing a client with that modification gains you more profit for 0 cost. (rational, and the equilibrium)

I wonder myself whether any mining clients at all will be released without that modification (to nuke base-fee), its not rational to release a client without the mod, (or to make one at all), so i really wonder how it turns out.

Edit: Miners can simply nuke base-fee on the EIP1559 chain, and censor anyone who doesn’t, this negates EIP1559’s effect, reverting to a base-fee auction, while not requiring a chain split… and not requiring any sort of “hostile” attack from the perspectives of the miners, from the miners perspective, they aren’t hard-forking, they are not double spending, they’re simply padding their profits for 0 cost to themselves, a completely rational choice that seems like the Nash equilibrium?

It also doesn’t require coordination as i noted before, it just requires miners to act rationally, there is no rational reason they’d release a client updated for EIP1559 without the base-fee-nuke modification. Also no rational reason miners would use one, if the alternative is available, (and it will be, probably before the EIPs hard-fork date even).

Double Edit: Miners also would not lose much by implementing this strategy, they lose even less when you consider MEV making up a majority of post-EIP1559 mining revenues.

If miners really wished to pad their profits, they could do all of the above, (censor hash that doesnt nuke base-fee, and engage in base-fee nuking), and, they could implement a minimum starting tip of their/the pools choice. (This could inflate gas prices, the minimum could be set to whatever they wished, and bidding would start there)

Mining clients or pools could also set up a system where the attack only becomes active during opportune times, such as having more than 51% of hash, and this would get around the problem of it being initially more ideal to defect if base-fee nuking begins, since it wouldnt begin until enough hash has signed on to make the attack self perpetuating (via a censorship of non-attacking hash)

Miners could also raise gas limit in retaliation and make the state growth problem 100x worse (while incurring little cost to themselves, again, especially once you consider a near majority of mining revenue coming from MEV) (and kill alottt of nodes)

2 Likes