Ethereum’s Fees Mean Choosing Between a World Computer and a Financial Network
CoinDesk columnist Nic Carter is partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass.
He is also the cofounder of Coin Metrics, a blockchain analytics startup.
What was once an idle supposition is now concrete. Public blockchains are destined to privilege the largest, most fee-tolerant transactions, at the expense of non-financial uses.
When a robust block space market emerged on Bitcoin in 2017, some wrote it off as an aberration, believing the future was #FeeLess.
Since then, Bitcoin’s bite-the-bullet approach to fees has taken hold: low-fee chains have suffered from bloat and irrelevance, and the second-most valuable blockchain, Ethereum, has effectively embraced the reality of meaningful fees.
This heralds a shift in how major blockchains are perceived, moving away from generic computation layers and towards their destiny as financial infrastructure.
The logic for this shift is simple. Satoshi included the combination of fees and the blocksize cap in Bitcoin as both an anti-spam mechanism (to prevent the injection of arbitrary amounts of data that would make the chain impossible to validate) and as a method to compensate miners in the long term.
Satoshi envisioned a future where fees alone would support miners, after the subsidy had run out.
Today, that doctrine is largely unchanged; Bitcoiners still expect fees to eventually grow to 100 percent of miner revenue.
(Bitcoin miners currently make 9.7% of their income from fees, according to Coin Metrics.) Capped block space is critical to make this work.
In a finite system, transactors are willing to pay up for inclusion in a block. In uncapped alternatives, fees are effectively zero and one can imagine that these chains will be forced to rely on perpetual inflation to finance security, or fall back to permissioned validators.
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