Vlad Zamfir, a developer at the Ethereum Foundation who has a background in statistics and maths, currently undertaking research in Proof of Stake (PoS), has decided to re-open his campaign in regards to what miners may do shortly before or during the transition to Proof of Stake.
On March 19th this year, Zmafir, who describes himself as an absurdist and a troll, decided to publicly argue ethereum should lower block rewards because he says:
“The increase in the price of block rewards means that miners will have much more incentive and ability to devote resources to participating in governance… When miners become more powerful, everyone else gets less of a say.”
He doesn’t quite define what he means by governance, instead he just quickly mentions it almost in passing to describe it as “the process by which the community guarantees the protocol’s assumptions and by which it upgrades the protocol is called “blockchain governance.”
For us to have a better understanding of governance, we need to have an understanding of this process. For ethereum, where a roadmap matter is concerned, such as Proof of Stake, that process is fairly simple.
The Ethereum Governance
Developers of all clients reach consensus on a technical level regarding how Proof of Stake should be implemented. Then, they incorporate it into the ethereum software (nodes) in a manner which says after block x new rules come into play.
The process then usually moves to miners, but in the unique case of Proof of Stake, it moves to all those who run nodes. They decide to upgrade and apply the new rules or not upgrade and not apply the new rules or a mixture.
If there is a mixture, there are two chains, moving the process to effectively the entire world for the free market to judge which has value and what amount of value, similar to ETH and ETC.
There are a number of ways this process can break down. The relevant ones are a disagreement between developers on how something should be implemented or a disagreement between miners, or a disagreement between miners and developers.
Systemic Risk – Miners or Developers?
Zamfir says that a concentration of power in miners “poses a systemic risk to all blockchains. I think we’ve seen this play out in Bitcoin. I don’t want to see it happen in Ethereum!”
He is factually incorrect to say the bitcoin scalability debate was due to miners. What caused the bitcoin metaphorical civil war was a disagreement between prominent developers with the five most senior who hold commit access being split 50/50.
On one hand, Gavin Andresen and Jeff Garzik were of the view that the maxblocksize should be increased to add capacity. On the other hand, Gregory Maxwell and Pieter Wuille were strongly against a maxblocksize increase.
The matter was thus opened to the general public to decide, with some favoring bigger blocks and some smaller blocks while miners were and remain split at around 35% for smaller blocks and 45% for bigger blocks even now two years after the debate was opened.
As such, the bitcoin mess had nothing to do with miners, making his analysis flawed if it was solely based on that assumption. The bitcoin mess had everything to do with developers, including some who, whether rightly or wrongly, thought it was a good idea to go on public political campaigns instead of managing to persuade other developers first.
That’s not to say developers should not, as a last resort, involve the public when they disagree and there is no way to bridge that disagreement, but in our view, it should not be a first resort.
In the proposed case here, Vitalik Buterin made it clear that just as Zamfir is worried about what miners might do, Buterin is worried about what developers might do, and in his view it is quite something for developers to suddenly get involved in changing fundamental parameters such as block rewards not based on technical consideration, but on subjective hypothetical mere opinions.
He says technical considerations would come into play if the difficulty bomb was delayed or the PoS/PoW hybrid is implemented as then the aim would be to maintain the roadman and so order the reward as to make most sense in a technical manner and with a focus on the long term rather than short term price movements.
We agree with Buterin. The public blockchain space now does have some history which may allow us to objectively analyze how certain somewhat more social aspects operate and one lesson might be that the three constituents – developers, businesses, miners – need to respect each other’s jurisdiction if they are to avoid complete chaos.
The Proposal is so Unworkable We Have to Ask is Zamfir Trolling?
But even on a practical level, Zamfir’s proposal would not work on many angles which raises the question of whether he really thought about what he suggests or whether he is engaging in the self-described activity of trolling.
Firstly, if the miner reward is to be lowered while the network operates on Proof of Work (PoW), then it would necessarily require the consent of the miners for they must upgrade, a fundamental difference between this proposed fork which is not on the roadmap, and the Proof of Stake fork for where the consent of miners is not required at all.
It would be a good guess to say that the likelihood of miners agreeing to lower their own reward would be zero. So then what would be the point of asking them to do so?
The second aspect is what would happen even if miners somehow did agree. The price would increase assuming demand remains the same as supply is now reduced. Thus, the miner’s reward would increase too. The increase in the reward through price appreciation would probably be very close to the amount decreased through the fork because of simple demand and supply economics 101.
So the activity would be pointless. Did Zamfir really not think of his proposal this far? Or was his aim to put his name out there so people, like us, write about him? And if it is the latter, is he not a significant risk to the ethereum ecosystem because he might create division like the one that was created in bitcoin by developers, not miners?
There are other aspects too, such as mining profitability. In a free market with no barrier, such as ethereum mining, where there are profits to be made capital moves in to provide the required demand, which in this case would be security through mining.
Price has appreciated quickly, so that new capital has not yet arrived, but it should be expected since it is free money. That would increase difficulty, lowering the reward each miner gets.
But price moves up and down. Did Zamfir consider what would happen if price suddenly goes down or does he expect it to go up in a straight line? Do we then fork again because miners might leave for other chains or would we be happy with low security that might open the network to a 51% attack?
Or is Zamfir’s precise aim to stir the pot so that confidence is shaken and price does go down so that protocol upgrades are easier due to a smaller ecosystem – an idea which we think misguided because price appreciation increases resources to bring the roadmap forward.
If that’s his aim, then the only confidence he may be shaking might be the confidence of some observers on him as a researcher if this proposal was seriously meant because even on a cursory look it is clearly very flawed, but let us address the point of price because it addresses another concern that if miners get very rich they might hire troll armies to persuade the market to not value the Proof of Stake ethereum.
The Social Attack Vector
The Ethereum Foundation recently became the richest blockchain company. That means now they have a lot more resources on their hand and since they are a non-profit much of it would go towards developers and researchers who can bring forward the roadmap with upgrades proposed much more quickly.
Moreover, if it became obvious troll armies are being used, the Ethereum Foundation can also hire specialists in marketing who might further be aided by marketing specialists in other ethereum firms, such as ConsenSys, and since their proposal would be superior then one can assume the public would be sufficiently smart to value higher the Proof of Stake ethereum.
Miners, however, might find it far cheaper to simply move to ETC or ZEC or some other coin, than engage in a war of attrition which would dry up their profits. It is unlikely, therefore, the upgrade would be controversial in any way since it is in the roadmap and everyone has agreed to it, including miners, plus there is a ticking difficulty bomb that was put there precisely so as to make the miner’s views irrelevant.
As such, we have to ask whether Zamfir is trying to make it contentious? If so, hopefully he is aware that some have learned from the bitcoin history and might opt to be over cautious regarding potential pot stirrers.
We’ll put it down to his youth this time, but if he continues to try and divide, perhaps his technical input might become less relevant and the Ethereum Foundation might perhaps wish to consider asking for his resignation.