In ancient times, Greeks would go to a square, discuss all sorts of matters, then hold a vote. In modern times, and specifically in the case of ethereum, that square is online and a vote may or may not be held.
A difficult discussion with considerable implications is a proposal to fix ethereum’s supply to around 120 million eth.
We think Nick Johnson and Vitalik Buterin had the most interesting debate on the matter and pretty much laid out the discussion lines and the trade-offs.
As an opening, it’s a fine discussion, but what we note is the lack of facts, or even an attempt to estimate. That’s understandable considering it’s the first discussion and can really be looked as a preamble to sort of ask whether ethereum should look more into this.
But let’s take two statements from both sides of the argument to make a point. First, from Buterin, we highlight a quote that appears to be most persuasive for it is technical in nature in addressing network security:
“If eth becomes this unique token inside of ethereum that has the anti-privilege of being inflated to pay for security expenditure, and you have the ability to just print ERC20s on top of ethereum and market them, and these tokens don’t have this disadvantage, then it may well be the case eventually there is going to be this tragedy of the commons where, even though eth is necessary for network security, no one wants to support eth.”
Let’s start with the very first word: if. Is it an “if” and is it a “becomes?” Because to us it looks like eth is very much inflationary currently, quite inflationary, and yet many seem to be quite happy to pay quite a bit for it.
The third word you can take issue with is “anti-privilege.” When the entire ecosystem runs on eth and tokens as well as dapps provide plenty of use cases that make people want to pay fees, then if there is such anti-privilege, it should perhaps be quantified and estimated, and not in a narrow way, but somewhat holistically.
Then, the main point: security expenditure. If one was really concerned with security expenditure, that could even be turned into an algorithm of sorts that automatically adjusts reward or inflation based on the needed amount to incentivize security.
Currently that algorithm is sort of already there and automatic in the way difficulty adjusts to maintain supply in a pretty complex arrangement which is most clear in bitcoin and has worked fine so far as hardware security tends to balance with price.
On the surface, however, and somewhat intuitively, that algo does appear to be a bit raw, simplistic, and maybe even crude, because it tends to punish the ecosystem when hardware security spikes too high.
Yet the alternative might not be too pleasant as you might have to introduce Oracle feeds for current price/market cap and thus accordingly adjust rewards or inflation in line with the needed level of security.
While that needed level of security could be measured by estimating how much it would cost to double spend a, say, $1 billion transaction.
Much of the above might be wrong, and that’s in part the point we are trying to make because it’s of course not for us to undertake studies, perform models, or to establish some facts in this very under-studied area.
All we can do is say that it needs not be mere opinions, because it can be a scientific exploration that does some concrete analysis to end with some conclusions.
Because if it is to be mere speculation, we can easily say Buterin is completely right in the above quote, just as we can easily say he is completely wrong because the point is far too narrow as it ignores the crucial role eth plays not in just paying for security but in also allowing tokens, or dapps, to “perform,” which means they have to pay for every transaction for the anti-privilege of securing eth’s network, a burden we’re sure they’d rather not have.
“Personally, I don’t think transaction fees have to be the thing that supports the blockchain,” Johnson says. “If we need some amount, x eth a day to incentivize miners or stakers, you can take that from inflation or fees.
I think it makes for a more useful system if you take it from inflation because it imposes the cost on everyone who is invested in that system, not just those who are transacting.”
That’s a fine position to support, just as it is a fickle position without some facts as shown by Buterin stating “I used to think this way.”
What changed? We don’t know, but without facts to ground oneself you can easily change your opinion day to day.
The important facts here are the answer to some of the following questions. How much would fees per transaction need to be to solely support eth’s network security? Does that vary? How and by what factor? How would that all change if 0.5% inflation is added. What of 0.001%, 2% and so on.
Obviously this wouldn’t be an exact science, and the answer would depend on the premise. If it is one billion transactions a day, then less than a cent might be enough. At 1 million or even 100 million transactions you’d probably be looking at $100 or $1,000 fees.
If you add eth to it, then it depends how much eth is valued. At $100k per eth, then less than 0.01% inflation might be enough to secure the network at 100 million transactions a day paying sub-pennies in fees.
All of the above numbers are off the hook, but they show how easy it can be to bring some sort of scientific approach to these matters, rather than leaving them all to complete speculation.
It is in speculation where Vlad Zamfir shines we must say a bit in jest. Here our proof of what we think is a very… erm… juvenile level of debate:
“Is it really the case that a high inflation rate would reduce the economic security of the consensus protocol? I used to think so, and I used to repeat this to argue against issuance. But I don’t anymore!”
So Zamfir says. To go back to Buterin, you remember he said in regards to inflation: “I used to think this way,” Buterin says. “The problem is, as Vlad keeps pointing out, that if you do that, basically every ERC20 token becomes a better store of value than eth.”
So is Zamfir playing, is Buterin hazing, or are they both playing philosophers rather than science? Because at this level of discourse, they then go to governance, when the only governance lacking here is some respect for the scientific process.
That is not to say that science be all, or that there is no place for logical analysis, but it wasn’t the cypherpunks handweavingly speculating on mailing-lists that invented bitcoin, but probably someone, or some group, with a much more scientific approach.
At the end of the day the governance of blockchains, which are ultimately social networks just as is money itself, can not be anything more than whether the “right” approach is taken, as judged by the market, and to determine that right approach one needs facts because opinions everyone has. And sometime, as we saw above, they even have two opposing opinions per issue.
So if we conclude the preamble to this debate, we need a lot more facts before a rational decision can be made. In the meantime, ethereum can reduce the mining reward to 0.6eth and we’ll see what happens.
The above leaves us with little space to address the Parity matter. As we have stated before, we think they should just fork on their own to a new Parity blockchain.
Eth does need some proper competition to keep them on their toes and a blockchain approach which is more open to forking off big thefts or accidental hacks would be an interesting experiment.
Because all this is so new, we don’t quite know what approach works. A willingly frozen blockchain might be the right approach, just as a blockchain which moves a lot faster could be more user friendly.
The ethereum community appears to be largely against restoring the accidentally frozen eth, but appearances can easily deceive because we don’t really know what the majority truly thinks.
Yet it doesn’t really matter what they think. If there’s some demand for the fork, then there can be a new network. It’s true it would be a minority coin which perhaps can’t quite compete with eth’s network effects, but if that minority is a market cap of $10 billion or $20 billion, then it’s quite some minority.
Understandably Parity probably doesn’t want to fork on their own. They’re ethereum’s second biggest client, forking off might wobble eth, that itself might “taint” the minority chain, but then Parity doesn’t owe ethereum anything, especially when the eth community might in this matter be seen as too greedy and very narrow in that greed.
Understandably, perhaps, because they’re worried others will shout immutability, immutability, yet they do so anyway and the caravan still moves on.
And that it does so shows speculation doesn’t lead us to “truth,” especially when that speculation concerns what might happen in 20 years or in a century.
This space is now big enough, and resourceful enough, for actual thorough analysis to be undertaken on matters of importance and for studies to reach some concrete conclusions.
The University of Cambridge might be relevant in that respect as they focus on blockchain’s economical aspects, but then so could be UCL or any other research center.
Or, indeed, why not have an ICO while we’re at it. Because otherwise, without some ground, everything turns into a debate and those debates will amount to who can shout loudest.
Which is great for us here at trustnodes, giving us plenty to talk about, but perhaps not a great way to run a network with ambition to power the entire globe.