A Case Against Ethereum Block Reward Reduction to 1 ETH in Constantinople (EIP-858)
This is a follow up post to my previous article: “A Case for Ethereum Block Reward Reduction to 2 ETH in Constantinople (EIP-1234)”. In that post, I laid out why I think the Ethereum block reward should be reduced from 3 ETH to 2 ETH via EIP-1234.
There is another proposal on the table from the community, EIP-858, which asks to reduce the block reward from 3 ETH to 1 ETH. I first want to note that there is a flaw in this EIP as it does not also include a delay to the difficultly bomb, but I just want to focus on the block reward aspect here.
I suggest reading my previous post for details into the analysis but as a recap, Ethereum is currently paying more for network security when compared to Bitcoin. I’m using metrics which attempt to compare total miner incentives using coin market caps. The theory is that if a networks value (market cap) is a factor higher (or lower) than another network, then the network’s participants should be willing to pay that factor more (or less) for network security. We previously saw that in its current state, Ethereum is paying more for security in comparison to Bitcoin by a large factor of 2.5:
In reducing the block reward from 3 to 2 we see that the ratios start to come in alignment (note: I updated this graph to reflect the latest ETH price of $400).
Now, let’s take EIP-858’s proposal and see what it looks like on the graphs. First up is the inflation and supply graph until 2020:
Notice that inflation would fall to about 2.4%. This is a total drop of 5% from the current levels of 7.4% and also puts Ethereum well below Bitcoin’s 4.25%.
This next graph is a major concern to me and why I do not think this proposal is feasible. The ETH:BTC miner incentive ratio drops well below the ETH:BTC market cap ratio:
And the ratio factor graphs shows that Ethereum would start paying considerably less than Bitcoin does when leveling them using market cap:
So, while I am for a block reduction from 3 ETH to 2 ETH because I think it brings Ethereum’s payment for security in line with the market, I am against a reduction to 1 ETH as I think it is too extreme and would put the network at risk.
