Opinion: EIP-1559 is futile and of no benefit
Editor's Note: This article comes fromEthereum enthusiasts (ID: ethfans), Author: A Jian, reproduced by Odaily with authorization.
Editor's Note: This article comes from
Author's note: For readers who are already quite familiar with EIP-1559, you can go straight to the fourth subsection of Section III 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.here。
I. Introduction
Readers who are not familiar with this topic can start from the beginning. If you still need an introduction to the content of EIP-1559, please see
here
first level title
I. Introduction
The name "EIP-1559" must be familiar to everyone. This proposal, 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). A key link", has received more and more attention.
A year and a half ago, after reading the introductory article by Eric Conner, the second author of the EIP-1559 proposal, I wrote a scathing article arguing that this proposal does not solve the problem that the proposal was originally intended to solve, but will Introduce more transaction friction. My friend Elisa also helped me translate the article into English, but unfortunately there were very few responses.
What if ETH had a fee burn 5 years ago
EIP-1559 51% Attacks: Should you live in fear（Times have changed, and voices supporting EIP-1559 have appeared repeatedly recently. Whether it is the expectation of "deflationary Ethereum" or the anxiety caused by the rising Gas Price, it seems that the popularity of supportive arguments has been exacerbated.）
Ethereum fee market reform: EIP-1559 as a question of fairness（But I never saw a reason that would convince me. These supporting opinions either misunderstand the operation principle of the fee market (it is actually and can only be the 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 have collected several recent articles that support EIP-1559:
Babbitt Chinese Version
Chinese version
I have great respect for the intellectual resources that the authors of these articles have 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 a "#" sign and a number).
I start with some simple economic reasoning and then discuss in detail the problems with these articles.
first level title
2. Simple economic reasoning
Assuming that the market price of an item is high, do you think that depriving the producers (sellers) of the economic income from this item can make it cheaper to acquire it?
Obviously not, because the price is determined by supply and demand, and cutting the income of sellers will discourage their production enthusiasm, and it will also block the signal function of price (profit rate), so that potential producers will enter this production field. The decline in enthusiasm will 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 lower the price of Gas. how can that be possible?
Suppose you go to the hospital now and find that doctors’ outpatient fees are very high. You think it is expensive. Which of the following methods do you think will allow you to obtain more cost-effective services (the same price can get better services, or the same service can only pay less)?
A. Lobby the government to introduce control measures for outpatient fees, divide doctors into grades, and set the upper limit of outpatient fees for doctors of each grade;
B. It is immoral to accuse doctors on social media, scolding doctors as profit-seeking guys who don't care whether patients live or die;
C. The government begins to collect taxes on outpatient fees, or increases the tax rate on outpatient fees;
D. While the government collects taxes on outpatient fees, it comforts everyone that it doesn’t matter. I don’t spend all the taxes collected. I put the money in a public account and never use it to help everyone deflate;
E. The government controls the price of doctors' consultation fees, and at the same time provides subsidies to doctors, and finally taxes on consultation fees;
F. While the government collects taxes on outpatient fees, it says that these taxes will become a pool of funds to enjoy the interest of bank savings, and after a period of time, the funds will be returned to doctors in proportion to 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 and insufficient supply, which is reflected in the upper limit of the number of registered numbers, increased queues, and 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 in 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.
#D, people with discerning eyes should see it, in fact, this is EIP-1559. It's actually #C (the effect of taxes) 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 price (measured in the amount of currency (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 case of consumption tax being levied? 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, but also block rewards. But in fact, 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 link EIP-1559 with the above example, that is, EIP-1559 is a tax in the first place. Why do you say that? -
The key move of EIP-1559 is to make the amount paid by users (buyers) not equal to the amount received by miners (sellers). 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!
image description
- source:
Economic Analysis of EIP-1559
Many people claim that EIP-1559 can improve user experience, but they obviously failed to 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.
Next, I will discuss the fallacies of several of the above articles.
first level title
3. A wise man thinks a lot
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 blockchain that does not implement it.
(1) #1 and Slack mechanism
#1 argues in the paper that EIP-1559 makes the actual size of blocks more resilient to sudden surges in demand, so that certain blocks can be larger without becoming long-term burden. 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.
I did not mention this in the previous article, I was an oversight.
But this is not without cost. Suppose the demand suddenly drops, and the rate that users are willing to pay drops directly to be lower than the base fee rate, then the Ethereum network has to issue empty blocks and wait for the base fee to be adjusted downward. up.
secondary title
#3 is 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 uncontrollable completely misses the point, or is 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 money was called Gas Fee, but now it 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 feel that EIP-1559 is uncontrollable, and the cost of manipulating it is greater than the gain. But since the miners don't need to manipulate it at all, this benefit doesn't exist.
secondary title
(3) #4 and the "commons"
The author's conclusion is: This means that the block space of Ethereum is a "commons", and miners are "rent seekers on the commons".
It really surprised me. What surprises me is not only that the author seems to have completely misunderstood the role of Proof of Work (PoW), ignoring the core function of PoW in ordering 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 the author's so-called "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. Could it be 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.
secondary title
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, the computing power input of the profit-seeking miners will also fluctuate accordingly, and the network’s Security will also fluctuate accordingly, and the Ethereum network will fall into an unfavorable situation; EIP-1559 can eliminate this risk once and for all, by reducing miners’ fee income while maintaining the value of block rewards to maintain the stability of miners’ computing power input sex.
However, it is also possible to analyze whether this argument is correct by using the tools we introduced above (supply curve, demand curve, market equilibrium point, producer surplus, consumer surplus). 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.
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
text
All the above conclusions rely on hypothesis 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.
text
If we really want to implement a "minimum issuance rate" policy, we should not implement EIP-1559.
first level title
4. Conclusion
In summary, I demonstrate 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 researchers have indicated that a similar mechanism may be implemented in Phase 1.
What I am more concerned about is whether PoW Ethereum will decide to implement this mechanism because of the current general support. 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.
