Ethereum’s Vitalik Buterin Proposes new Fixed Fee System for Transactions


The Co-Founder of Ethereum, Vitalik Buterin recently opened up an issue on GitHub, proposing a potential idea, which would change the existing transaction system of the highest fee auction model to a more fixed fee model.

After bringing this up in conversations on a number of online platforms including cryptocurrency and blockchain-based forums, Buterin also raised this discussion at the Crypto 2018 event. Among those supportive of the proposed model were members of the ZCash community, which welcomed it and suggested that Buterin start a discussion on the same vein.

In these discussions, Buterin explains that the current systems of public blockchains, which also include Ethereum and ZCash, utilize a specific block size limit along with a fee market used to regulate the inclusion of various transactions. This is done with the intention of preventing users from spamming the blockchain. However, the disadvantage with this technique is that it forces transaction senders to pay for the costs they impose on the network.

Buterin goes on to argue that the cap-auction method is the only method that can be used to resolve this previously mentioned limitation with public blockchains. He goes on to state that he believes that there are other methods which can prove to be more beneficial for the respective parties and, as a result, merit more attention as possible alternatives.

Along with his argument, he cites three ongoing issues that blight the current 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 then explains that this proposed idea will eliminate all three issues he mentioned. Overall, the proposal is the remove the current fee calculations that contribute to a greater level of volatility, replacing it instead with a protocol that determines a fixed fee, going on to combine it with a formula that allows incorporation of real-time capacity.

Buterin goes on to say:

“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 states that he believes with such a method in place, it would eliminate the drawbacks from social cost mismatch, due in large part to fee volatility, he goes on to say:

“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, putting to use this methodology would replace the auction with a fixed fee rate, simplifying the process of fee calculation:

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

Buterin also mentions that the aforementioned theory runs effectively in line with Ethereum's blockchain, but would prove relatively straight forward if it were to be adopted as a solution for ZCash as well, considering how it's theoretically in line with public blockchains already.

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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