Ethereum miners strike again? What's up with EIP-3368?

Editor: South Wind

Source: Unitimes

For current Ethereum network users, transaction fees can be as high as $60. Reducing the rising transaction fees is currently a major concern of the Ethereum Foundation.

The upcoming Ethereum London hard fork upgrade (expected to take place in July this year) plans to implement the controversial EIP-1559 proposal, which may lead to short-term profit losses for miners . This is why the Ethereum Foundation is trying to ease the " show of force " with some miners for a possible 51% attack on the network.

Some people believe that the sudden drop in mining revenue brought about by the implementation of EIP-1559, as the Ethereum network plans to completely switch from the PoW consensus algorithm to PoS, may lead to a sharp drop in mining profitability, which in turn incentivizes miners to "auction" computing power to the highest bidder . Some community members believe that if these computing powers are obtained by hostile mining pools, the Ethereum network may be subject to a 51% computing power attack.

At the same time, many Ethereum miners (represented by mining pools) began to express their opposition in a coordinated manner, and created a website called " STOPEIP1559 " ( https://stopeip1559.org/, see the picture below ) to try to stop the proposed change. The website wrote: "By joining together, miners can work to postpone or modify these proposals to improve the mining community."

The website lists the mining pools that currently oppose the EIP-1559 proposal and those that support it:

Ethereum has always priced transaction costs through the so-called "Gas price". With the help of the " highest price auction mechanism ", users send transactions to the Ethereum network for verification, and attach a transaction fee they are willing to pay to miners; when miners package transactions, they often process transactions with higher transaction fees first. This process makes it difficult for users to estimate the "appropriate" transaction fee, so they often pay too high a fee or have to wait too long for transaction confirmation .

To address this, EIP-1559 is scheduled to be activated during the London hard fork upgrade in July 2021, but it has also led to a disagreement between miners and Ethereum core developers (and users). Currently, due to the massive increase in DeFi projects, transaction costs have soared, allowing ETH miners to conduct highly profitable mining . In addition, there is not enough block space to confirm all transactions immediately, which leads to network congestion, which in turn intensifies the bidding of transaction fees by users . In order to get their transactions confirmed first, it is often more desirable to pay higher transaction fees, because miners tend to process higher-bid transactions first, contrary to the principle of "first come, first served". At present, the demand for transactions is very high, and Ethereum users have to increase their tolerance for high transaction fees . At the same time, some Ethereum network users may also choose other competitive blockchain platforms with lower fees, such as Cardano, Polkadot or Algorand, which are now also enhancing their smart contract capabilities. As a strategy to reduce losses to other competing platforms, EIP-1559 can be seen as an attempt by the Ethereum Foundation to introduce a mechanism that will increase the predictability of transaction fees while ensuring that miners are motivated by more than just maximizing profits . According to this proposal, each transaction paid by a user contains BASEFEE (basic transaction fee) + Tip (tip), BASEFEE will be adjusted up and down in each block, and all BASEFEE will be destroyed, thereby reducing the amount of ETH in circulation. Since this planned upgrade will allow part of the transaction fees to be "destroyed" instead of flowing into the hands of miners, it will lead to a reduction in miners' gross profit margin . In practice, destroying transaction fees also means removing some ETH from circulation and improving the transparency and predictability of transaction fees . If the proposal is successfully deployed, it is also possible to turn ETH into a value storage method similar to Bitcoin. Ben Edgington, a developer at ConsenSys, said that Ethereum’s current transaction fee bidding mechanism is “a major problem for Ethereum’s usability and an obstacle to wider adoption of Ethereum by non-professionals.” Therefore, EIP-1559 “is very popular among Ethereum users because it could make ETH a deflationary asset .” Dan Finlay, lead developer of Ethereum wallet MetaMask, said that the proposal “aims to provide a more predictable transaction pricing system, reduce overpayments , and come with some incidental benefits of deflationary economics.” Lex Sokolin, co-director of ConsenSys Fintech, also said that these changes will change network fees “from an unpredictable and unbounded pricing mechanism to a more predictable pricing mechanism .” The anonymous founder of Pylon, a major North American Ethereum miner, said that miners have spent a lot of time and money building equipment and may now face serious losses due to these changes . “[Ethereum] developers don’t mine, so they don’t care too much about miners, and miners don’t develop, so they don’t care too much about reducing network congestion,” he said. As mentioned above, some Ethereum miners have threatened to strike or otherwise try to disrupt in protest of the changes .

At present, there are three possible scenarios:

(1) The Ethereum Foundation may abandon the deployment of EIP-1559 in the London upgrade in order to seek consensus in the mining community. However, this is unlikely . (2) Miners may unite and rent out their computing power to launch a 51% attack to block the EIP-1559 proposal. This is also unlikely . As of the time of writing, although protests on the "STOPEIP1559" website are still ongoing, most miners seem to be calmly accepting the node update led by Ethereum developers. In this regard, Gina Pari, founder of the non-profit organization SweBlocks, said: "Although a 51% attack is theoretically possible, in practice there is a limited risk of this happening . In the long run, such an attack is not a good move for miners because it will accelerate the transition to Ethereum 2.0, and given the change in the consensus algorithm (Ethereum 2.0), it means that miners will go from a reduction in transaction fee rewards to no rewards (no mines to mine). In addition, if they simply destroy the Ethereum blockchain to maximize profits, this hostile display of power may have an adverse and lasting impact on the Ethereum community , and thus a negative impact on the value of ETH . Given the high initial investment cost of participating in ETH mining, a reasonable assumption is that miners are unlikely to abandon Ethereum because the profitability of mining will continue to remain relatively high until it implements the (consensus algorithm) change." (3) Another Ethereum improvement proposal , EIP-3368, has been proposed (currently not approved), which proposes to increase the block reward for each Ethereum block from the current 2 ETH to 3 ETH , and gradually reduce it to 1 ETH over the next 2 years. This proposal could further incentivize miners to accept EIP-1559’s transaction fee “destruction” plan.

Next, let’s focus on the EIP-3368 proposal and the Ethereum community’s response.

As mentioned earlier, according to the EIP-3368 proposal on GitHub, this proposal aims to "change the block reward paid to PoW miners from the current 2 ETH to 3 ETH , and then gradually reduce the block reward for each block in 4,724,000 blocks (approximately 2 years) until it reaches 1 ETH ."

Screenshot from the EIP-3368 GitHub page

Regarding the " motivation " for submitting the EIP-3368 proposal , the page reads: "A sudden drop in PoW mining rewards may lead to a sudden and sharp drop in mining profitability, which may prompt consideration of what to do with their now "worthless" mining hardware and auction their computing power to the highest bidder. If miners sell enough computing power at the same time in this way, attackers will be able to rent a large amount of computing power at a relatively low cost in a short period of time and may attack the network." By increasing the block reward to 3 ETH and gradually reducing it to 1 ETH over 2 years, "this method (for miners) provides a higher level of confidence while allowing miners time to gracefully reuse/sell their hardware . This also greatly improves the security of Ethereum PoW. "In addition, gradually reducing the block reward to 1 ETH "promotes the known deflationary plan, which is consistent with the plan to replace PoW with PoS in 2 years and the overall minimum viable issuance (ETH's monetary policy) "As for the security of the Ethereum network, the initiator of this proposal stated that "security is the most important thing in the cryptocurrency blockchain, and the risk of being unable to resist 51% attacks is real... This proposal focuses on ensuring that the Ethereum network's advantage in security continues to be one of its key aspects ." In addition, the reason for gradually reducing the block reward from 3 ETH to 1 ETH over a period of 2 years is because " this gives miners enough time to find alternative uses for the hardware , or to put the hardware back on the open market (for example, as gaming GPUs) without causing these devices to suddenly flood the market ." Since the EIP-3368 proposal was proposed, it has sparked a lot of discussion on the Ethereum forum "Ethereum Magicians" (see the figure below) , with both supporters and opponents .

Screenshot source: https://ethereum-magicians.org/t/eip-3368-block-reward-increase-w-decay-for-next-two-years/5550

Here, the editor has selected some of the forum users’ opinions with the highest number of likes. When sorting, the editor found that the majority of opinions in the forum were against EIP-3368, but this only represents the views of some Ethereum community members, and readers should have their own understanding.

Forum user DCinvestor expressed opposition to the EIP-3368 proposal , writing:

Ethereum has established a “minimum viable issuance” model with broad community consensus. Most forecasts do not indicate that an increase in block rewards is necessary to maintain the safe operation of the network, even if EIP-1559 is successfully implemented.

Furthermore, this form of adjustment will only delay the inevitable as we are rapidly moving towards the merger of eth1 and eth2, at which point the rewards for PoW mining will go to zero. In my opinion, given this reality, we should avoid measures that encourage miners to further invest in mining hardware.

For these reasons, I believe this proposal is not necessary to maintain the secure operation of the network, nor will it effectively improve the network.

User Rob agreed with DCinvestor, writing:

I completely agree with everything DCinvestor said. Increasing the block reward is unnecessary for security, undermines the "minimum viable issuance" monetary policy, and is a distraction from the Ethereum roadmap. Accepting this proposal would set a bad precedent that issuance (ETH) can only be increased if there is enough social pressure to benefit certain stakeholders. This would be disastrous for Ethereum.

User YouBoyFromMars also expressed his disapproval , writing:

How to determine the 2-year mitigation period for the block reward (from 3ETH to 1ETH)? The problem is that the probability that the merger of the PoW and PoS chains will not happen within 2 years is basically zero. This means that this proposal will almost certainly lead to a net increase in (ETH) issuance, which will lead Ethereum away from the goal of "minimum viable issuance". I think the concerns about ETH being attacked by 51% are also overblown, and the PoS merger will come sooner than we think.

CryptoHokie also expressed his opposition , writing:

This proposal would break a well-established social contract of “minimum viable issuance.” Not only would this benefit miners at the expense of users and (ETH) holders, it would also set a precedent for a user-first network where miners could make similar angry threats against any future changes that might impact their short-term profitability. Ethereum is a user-centric network, not a miner-centric network.

Bargaining with miners is unnecessary. The dynamics of mining market competition, the function of the mining difficulty algorithm, and strong emergency social coordination to deal with miner attacks are strong enough deterrents that I believe any such "show of force" (by miners) is just hyperbole and not a threat worth taking seriously.

The “threat” this proposal seeks to address is a decrease in security due to an exodus of miners who can no longer remain profitable. But that is not the case. It is a misleading conclusion.

If miners are leaving due to the negative impact of short-term profits, and if 51% of the network can already mobilize through "shows of force" to a) enforce their governance will by creating fear, or b) launch an attack if they really want to, then the (high) cost of attacking Ethereum through renting hashpower makes such an attack an insignificant threat. If your opposition to EIP-1559 is to prove that you can coordinate and gather 51% of the hashpower, it is stupid to use "attacks through renting hashpower" as a scapegoat.

If miners unite and successfully launch an attack through computing power, the only acceptable response to this threat is to abandon the PoW chain that has become obviously flawed.

The initiator of this discussion post, bitsbetrippin , expressed support for the EIP-3368 proposal . He refuted CryptoHokie’s point of view:

This has nothing to do with a “social contract”. The risk is actually linear. 51% attacks are not theoretical, they have already happened to many PoW chains. This complacency led to ETC (Ethereum Classic) being attacked 4 times before the chain was forced to implement 51% resistance.

I want to make sure there is a real plan ready to go to address a mass exodus. Ethereum should have a forecast period. The algorithm is vulnerable to a 51% attack, and other networks using the Ethash algorithm have been successfully attacked.

We must discuss the astounding fact that the current Ethereum hashrate is 2.5x the previous all-time high, which means that the GPU/ASIC hashrate of the entire Ethereum PoW network is enormous, and a large portion of that hashrate is coming from new mining participants. Therefore, the attack vector does exist. Nicehash, MiningRigRentals, Cudaminer, and about 10 other independent brokerage services all offer brokerage services to sell hashrate to the highest bidder.

User nikitakhrushchev disagreed with bitsbetrippin's opinion, replying:

You provide no evidence or model to support your claim that a 51% attack would occur if EIP-1559 were implemented. Meanwhile, there is a ton of evidence from the other side. The fact is that Ethereum hashrate is 20% lower now than it was a month ago, but no attack has occurred. This is just blatant panic from miners.

The main limiting factor in hashrate is GPU shortage, not profitability. ETH mining is very profitable right now, and even though my electricity costs 25 cents/kWh, it is still profitable for me to mine. Even if miners' fees are cut in half (due to the destruction mechanism of EIP-1559), ETH mining will still be profitable. EIP-1559 may not even cause the Ethereum network hashrate to decrease by more than a few percentage points, because most miners will continue to be profitable, which means they will continue to keep their mining machines running.

User samueldashadrach also opposed the EIP-3368 proposal , writing:

This proposal violates the pre-established "minimum viable issuance" standard. EIP-1559 has been notified to miners six months in advance, and the plan to merge with the beacon chain has also been notified to miners. The only reason to succumb to these conditions (i.e. support EIP-3368 proposal) will be a credible threat posed by miners - mining empty blocks, censoring transactions, or otherwise destroying infrastructure. If the hard fork (initiated by miners) coexists with the current Ethereum network, then this forked network is not a credible threat because most users are not interested in a forked chain that the Ethereum Foundation does not approve.

A few points to consider:

1. It is too early to tell whether miners will enter a war of attrition, i.e. empty blocks or censor the network. This is a war of attrition because it involves miners trading short-term losses for expected long-term gains.

2. But it is also questionable whether these long-term benefits exist. The price of Ethereum may fall and the reputation of Ethereum will be damaged. This will hurt miners' income.

3. No miners have made any statements that they will remain peaceful once EIP-3368 is accepted, and there is no way to hold them accountable for any such statements they may make.

4. Accepting the EIP-3368 proposal is actually recognizing the authority of miners on top of the PoW consensus, which means that miners have unlimited power to propose bolder changes in the near future. Unlimited authority includes but is not limited to arbitrarily increasing block rewards or block sizes (Gas caps). Miners will even be interested in ensuring that the merger (with the PoS chain) never happens, so the merger must happen outside the PoW chain in a centralized way.

5. Giving miners the power to change block rewards sets a bad precedent for all PoW chains, including Bitcoin. That is, if miners coordinate fully, they can change block rewards at any time.

User Taegus supported the proposal and opposed samueldashadrach's opinion. Taegus wrote:

Can the transaction fee structure be changed but not the block reward? Force a cut in miners’ income without even trying to talk to them about it? If some people just have the power to change things at will without broad consensus, then ETH is a super slow and super expensive centralized database.

Also, I find it really disturbing that there is so much obvious misinformation being circulated and reported everywhere. Blogs, Youtube, etc., mostly spread misinformation, including:

• Miners will attempt to 51% attack ETH. This is completely wrong. Miners are just showing that they can gather 51% of the hashrate, which does not mean that they will actually launch an attack.

• EIP-1559 will reduce transaction fees. This is also wrong, EIP-1559 will only make fees more predictable. Transaction fees are based on network congestion.

• EIP-1559 will drive ETH into deflation. It is possible, but it is not guaranteed to happen. If you really understand ETH's fee structure and economic incentives, it is unlikely to be deflationary in the short term.

The above are just some of the opinions of community members. For more arguments in support of/against this proposal, readers can visit this forum:

https://ethereum-magicians.org/t/eip-3368-block-reward-increase-w-decay-for-next-two-years/5550/57

What do you think about the impact of EIP-1559 and the newly proposed EIP-3368? How do you think Ethereum miners will deal with the reduced profits brought about by EIP-1559? Feel free to express your views in the comments section.