Ethereum [ETH]’s Vitalik Buterin suggests a new fixed fee model for transaction

Fibo Quantum

Vitalik Buterin, the Co-Founder of Ethereum has recently opened a GitHub issue to propose an idea to change the existing highest fee auction model for transaction inclusion to a fixed fee model.

After posting about it at several online forums and most recently discussing it at the Crypto 2018 event, the Zcash community welcomed his idea and suggested he starts a discussion on the same.

Vitalik explains that the current public blockchain systems which also includes Ethereum and Zcash, adopt a particular block size limit and a fee market to regulate the inclusion of transactions. This is done in order to prevent users from spamming the blockchain he says. However, this technique forces transaction senders to pay for the costs they impose on the network.

Buterin argues that cap-auction method is the only method that can be used to resolve the above-mentioned issue. He also believes that other methods can prove to be more beneficiary and are worth looking into.

He poses three issues with the existing model:

  1. A mismatch between the volatility of transaction fee levels and the social cost of transactions
  2. Inefficiencies of first price auctions
  3. Instability of blockchains with no block reward

Buterin goes on to explain that his idea will eliminate all the three issues at hand. The proposal is to eliminate the current fee calculations that cause volatility and bring in place a protocol that determines a fixed fee combining it with a formula that allows incorporation of real-time capacity.

Buterin said:

“if the last block was 50% full, leave the fee unchanged, if the last block was 10% full, drop it by 10%, if the last block was 90% full, increase it by 10%.”

Buterin claims that his method will eliminate drawbacks from social cost mismatch due to fee volatility. He further said:

“Intuitively, the adjusting fee mechanism works like a fixed fee in the short run and a cap in the long run, and it turns out that because of arguments from Martin Weitzman’s 1974 paper fixed fees are likely better than a cap in the circumstances that basically all public blockchains are in today and will likely continue to be in.”

According to Buterin, this methodology will replace the auction with a fixed fee, simplifying fee calculation. In his words:

“calculate the fee for the next block, if you can afford it pay it, otherwise, don’t.”

He also mentions that the above theory is practically in line with Ethereum’s blockchain but can also be adopted by Zcash since the method is theoretically in line with public blockchains.

At the Ethereum Meetup conducted earlier this year, Vitalik Buterin gave the keynote address in which he discussed the idea. The Co-Founder believes that a lot more research can take place in this particular  area:

“So there’s still a lot of stuff here to kind of implement, to think about in terms of what’s the right way to implement these kinds of schemes and there’s still a lot of further research needed but again the point here is right that, aside from the research into technical improvements like ‘proof of stake’, like scalability and like privacy improvements as your knowledge proofs there are a lot of these improvements that can be made on the economic layer in order to basically improve the blockchains efficiency, make blockchains easier.”

He further added:

“basically by providing better incentives so that users stop imposing such a large social cost on each other and this is something that you know we have thought about a lot and we really need to be a need to be thinking about more in does the sort of a lot of attention.”

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