Vitalik Buterin’s proposal will make Ethereum’s rewards more efficient

  • A proposal by Ethereum co-founder Vitalik Buterin and Eric Conner will change Ethereum’s reward model to increase efficiency. 
  • The proposal considers splitting the charges into basic and premium and will be based on the demands of the network. 
  • The proposal could bring benefits to ETH holders and to the performance of the price of Ethereum.

Ethereum co-founder Vitalik Buterin and Eric Conner have published the first draft of a proposal to replace the Ethereum fee system. The current tarif system, known as “first price auction”, is inefficient and costly for ETH users.

Improvements in Ethereum’s economy

According to the publication, the current reward system is similar to that used by Bitcoin. The system works according to the demand for block space and the urgency of the user making the transaction. Users adjust the rate in relation to the time they want the transaction to be approved with bids (gas prices). Miners choose the transactions with the highest bids and receive the specified reward. In other words, for a transaction to be approved quickly, the user must set a rate that is attractive to miners in the network.

Buterin and Conner’s proposal is to divide the transaction fees into two components, a basic fee and a premium fee. The proposal seeks to eliminate sources of inefficiency in Ethereum’s economy: avoid unnecessary delays for users, avoid the mismatch between the volatility of transaction fees and increase the stability of Ethereum’s blockchain.

The first component of the proposal or base rate (BASEFEE) will be adjusted according to the level of congestion in the Ethereum network. To achieve this, it is proposed to increase the gas capacity supported by the network by 50%. Therefore, Ethereum’s network would increase from the current limit of 8 million gas to 16 million. In addition, the adjustment will make the fluctuation of base rates predictable and allow users’ wallets to automatically modify rates without the need for manual manipulation. Miners will receive a 0.5 gwei tip.

The miners will keep this tip which is the second component of the proposal or premium rate. The rest of the base rate will be burned:

The BASEFEE is always burned (i.e. it is destroyed by the protocol). Burning this is important because it prevents miners from manipulating the fee in order to extract more fees from users. It also ensures that only ETH can ever be used to pay for transactions on Ethereum, cementing the economic value of ETH within the Ethereum platform.

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The changes should be implemented in a fork that, for now, is named FORK_BLKNUM. The proposal does not provide a specific date for the introduction of this fork.

Ethereum performance and possible price drive

Ethereum is still king in the king crypto-industry that continues to gain traction: Decentralized Finances (DeFi). However, the cryptocurrency still remains below 88% of its historical value. Delphi Digital explains that Ethereum has not been able to attract fresh investment, but a change in the reward system could be a positive step for a following price of Ethereum.

The price of the Ethereum is $ 196, at the time of publication, and has had a moderate upward movement of 5.59% in the last 24 hours.

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About Author

Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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