Harry Hodler and April Fool
Thoughts on EIP960
As an independent Ethereum DAPP developer, I’m really quite happy sitting in a front row seat watching the highly skilled acrobatics of the core dev team as they research and implement insidiously tricky protocol improvements. I trust them by my knowledge of their demonstrated merit, that they won’t slip and fall from a great height, ruin the show and send the audience running for ticket refunds. It’s a show ring in which I’m happy to not interfere but feel knowledgeable enough to have a reasonably educated opinion on the matters.
As everyone in this community would know, Vitalik raised EIP960 on April 1st (April Fools Day) which proposes to cap the total supply of ether. The EIP reads as a serious and properly reasoned proposal so naturally the community was abuzz in trying to work out what that actual joke was. Thankfully he didn’t keep us in suspense and Tweeted the following day that it was a ‘meta joke’ to get people arguing over whether is was a joke or not! So I’ll lol for that, clap a couple of times and throw some popcorn at him.
The official EIP960 thread is of course now over run with 126 comments in the past week alone much of which is low grade ‘economics’ opinion and argument to which Nick Johnson duly reminded that Ethereum is a computer system and not an economy.
The point Nick made is fundamental. Ether has a primary intrinsic purpose on the Ethereum protocol. That is, to be consumed as a resource with which to run calculations upon a computational machine common. The protocol has enlisted, by design, the dynamics of self-interest economics as a methodology to prevent abuse of that common. Any economic arguments beyond this, such as ether being a SoV, MoE or UoA, are secondary to its purpose.
The fundamental question that must be asked when considering protocol change at the primary economic level is,
How will this impact upon the security of the protocol?
What Vitalik has proposed is to replace constant value block rewards with ‘Reward Units’(RU) where:
1 RU = (1 - CURRENT_SUPPLY / MAX_SUPPLY) ETH
This presents a horizontally asymptotic curve in which the value of 1RU decreases over time until
MAX_SUPPLY is reach. This is in essence similar to Bitcoin’s 4.5 year reward halving to target the 21 million supply cap but with a more continuous half-life of 744 days according to Vitalik’s calculations and under the theoretical assumption of continued POW mining.
To complicate matters, the supply is drained through proposed sinks such as Casper slashing and State storage rent. By these, the total supply becomes more in a steady state under a ceiling rather than at some cap.
Not a Hard Cap… #960 is a ‘Hover Cap’
Reward Units are a fundamental change to the issuance model, because they can be issued not just to miners but to pay staker’s interest and more generally, for any other future rewards schemes.
Changing the fundamental issuance model also changes the fundamental security dynamics from something rather dumb (POW self-interest) to something much more sophisticated at best or complicated at worst. Regardless, it would be a huge mistake to try and speculate upon this change in terms of current POW incentives and security. Speculation on the new dynamics requires a deep understanding of Staking, Casper in both its phases (FFG and CBC), gas costing and consumption and other fees which try as I might has always been quite beyond me. Many of these components are still under heavy research.
Harry Hodler Has His Say
What has been grasped by the broader opinionated community is really only the secondary market speculations of what effect a fixed supply will have on the exchange. The broad belief is that;
fixed supply => higher demand:supply => higher market cap = early hodlers get rich (again)
I don’t see much in this equation that relates to protocol security so don’t support this argument for a cap. Neither do I think its a valid argument for the future continued adoption of Ethereum as a trustless computational platform.
What I would like to see in regard to issuance is a dynamic that follows and fosters adoption of the platform itself and not just the currency. This adoption is a long term trajectory which should be as fair as far as cost to future generation as it is to us.
My fear is that a FOMO inducing hard caps will disadvantage those future adopters.
Consideration toward future adopters isn’t an argument against a hover cap, only the issuance time frame from a few years to perhaps decades and supply from 2x presale to maybe >10x presale.
April Fool Has her Day
I’m likely the April fool here in struggling to foresee futures of a technology as complex as Ethereum under this or that proposal. As I said, I’m happy sitting in the front row, and not swinging in the ring, but I do feel this proposal is significant enough to give deep consideration beyond just market speculation.