Revisiting EIP-1559 Is Ethereum safer two years after the proposal has been implemented?

Revisiting EIP-1559 Is Ethereum safer after two years?

Author: James Prestwich

Translation: Luffy, Foresight News

Before EIP-1559

In the crypto world before the arrival of EIP-1559, miners determined the block size through a simple voting mechanism. For each block, miners could move the block gas limit up or down by a maximum of 1/1024. Therefore, when miners produced blocks, the gas limit would move to the weighted average favored by the miners’ computational power. This mechanism has existed since the birth of Ethereum.

• Asset management giant Fidelity report Where does the value of ETH come from? How to conduct valuation?
• X’s encryption business first obtains permission, Musk may bring new variables to the cryptocurrency world.
• LianGuai Daily | Arbitrum plans to allocate 75 million ARB tokens as rewards to the ecosystem protocols; DYDX tokens will migrate to dYdX Chain as its L1 token.

With the introduction of EIP-1559, the gas limit has doubled, but the method of setting the limit has been eliminated. From the time after EIP-1559 until the merge, miners voted on the gas target, and the gas limit was defined as twice the target. For example, if the limit before 1559 was 10mm, the target after 1559 was 10mm, then the limit after 1559 would be 20mm. 1559 provided an effective increase in block size, but it also brought severe consequences (in the form of base fee adjustments). Miners under the 1559 system can vote on the gas target, which is no different from the previous adjustment system of moving 1/1024.

Now, 1/1024 (0.09%) may seem small, but it means an increase of about 5% every 50 blocks, or about 5% every 12.5 minutes, or a doubling every 3 hours. Imagine taking a nap and waking up to find that the gas limit has doubled (or halved)!

A Brief Review

EIP-1559 has 2 inputs and produces 2 outputs:

Block producers set the target gas for each block by adjusting it by 1/1024. In this way, the gas limit (twice the target) is indirectly set. Block producers set the base fee by combining the gas target with the actual gas usage. When the actual usage > target, the base fee increases; when the actual usage < target, the base fee decreases. There is a complex elasticity relationship here.

It is important to remember that the target usage does not affect the actual usage. In fact, each block producer sets both the target (through the adjustment mechanism) and the actual usage (by including transactions when building the block). In fact, each block producer controls the two inputs of EIP-1559 and can therefore control the outputs (for a specific block). The target in any given block is the result of the latest move by the producer in the infinite iteration of the “setting gas target game”. Therefore, over time, the behavior of the average converges to the equilibrium value in this game.

EIP-1559 and the Merge

The merger has two main effects on the Gas limit mechanism:

• Due to the slightly shorter block time, the cycle in which the Gas limit increases by 5% is shortened to 10 minutes. This means that approximately every 2.4 hours, the Gas limit may double (or halve).
• Miners are replaced by “stakers” or “validators” or others.

The first one further accelerates the already fast compounding process, but this may not be important.

I think the second one is more important. But it is not isolated, but part of a larger systemic trend. We’ll come back to this later.

What prevents the block target from increasing?

You may wonder why the block target does not increase? Wouldn’t it make transactions cheaper for users and allow validators to earn more money? If these things sound good, why is the target 15mm instead of 15,000,000mmm? Why is the 15mm target (30mm limit) the current balance?

The main reason is that it has always been set based on the recommendations of core developers. It is generally believed that we set it at a level we know users can handle within a reasonable time. Huge high-Gas blocks would DoS nodes and prevent confirmation. Validators (formerly miners) have to build blocks and validate blocks from others. And if the blocks are too big to reliably build or validate within the 12-second block time, validators would lose money when confirmations fail. This would also cause network instability as nodes may not handle gigabyte blocks well.

EIP-1559 mentions this in a fairly short security section, considering the security implications related to block size:

This EIP increases the maximum block size, which may cause problems if miners cannot process blocks fast enough, as it would force them to mine empty blocks. Over time, the average block size should remain roughly the same as without this EIP, so this is merely a short-term capacity burst issue. One or more clients may not handle short-term capacity bursts and errors well (e.g., insufficient memory or similar situations), and client implementations should be able to handle individual blocks at maximum capacity correctly.

We tend to think that validators have enough incentive to keep the block limit within a reasonable range, and considering the state of clients, a target of 15mm is reasonable.

Is EIP-1559 still secure with PBS?

MEV-PBS changes the situation. With PBS, proposers no longer directly pay for block construction costs. They outsource the entire process to builders. In fact, common MEV-PBS structures (such as Flashbots relays) hide the block from validators until it commits to proposing that block. As part of the construction process, validators communicate their preferred Gas limit to the relay.

Builders use specialized and optimized software (not off-the-shelf clients) to construct a block, which is then transmitted to the relayers with gas limit adjustments. The relayers ensure that the builder’s block meets the proposer’s requirements.

This brings an interesting situation. The proposers are now prohibited from paying block construction fees. The builders specifically pay these fees and don’t have to worry too much about larger gas limits. So in the MEV-PBS world, why should the gas target remain low?

Not safe yet

The proposers always have the incentive to infinitely increase the gas target to eliminate base fees, but they are limited by the costs and risks of doing so. On the other hand, the builders want to confirm blocks and don’t encourage building blocks that are too large to be verified within a confirmable timeframe. In other words, the profitability of builders is on thin ice. They need to carefully balance building larger actual blocks to gain more extraction with the impact of block size on confirmability. If the blocks generated by the builders are too large to be verified by the verifiers, they may lose the entire block reward. This means that builders have a strong motivation to keep the actual block size within a reasonable verifiable size, regardless of the gas target.

On the other hand, the proposers don’t need to consider such a balance. They can simply infinitely increase the gas target for protocol execution and let the builders find a profitable balance point. This can eliminate base fees while keeping the actual block space limited.

By increasing the gas target (and protocol-enforced limits) while keeping the actual block size within normal range, proposers can not only extract more MEV through abnormal block sizes, but also eliminate base fees while artificially limiting supply. If builders keep smaller blocks, users will have to pay gas fees, which brings us back to the fee market before EIP-1559. In fact, they can “assume” increased block space to patch EIP-1559 and then refuse to let anyone use it.

EIP-1559 seems like an obvious victory for proposers and builders. They can both extract more MEV for themselves in edge cases (by occasionally building huge blocks) and convert all base fees burned into tips paid through artificial supply limitations. And the cartel is incentive-compatible because neither party seems to profit from deviation.

This brings me to the central question of this article.

When will proposers and builders raise the gas target to 100mm+?

Considering the limitations of confirmability, builders should keep the actual block size near the current value regardless of the target size. Some reasonable small blocks can maximize profits. However, for proposers, some ridiculously high gas targets can maximize their profits. Since proposers and builders have different positions, they can collude to increase the gas target while reducing the actual scale to maximize profits.

As long as the actual Gas of the block remains around 15mm, isn’t a 15000mm Gas target more incentive-compatible than a 15mm Gas target?

Therefore, whether it is the block builder or the validator, raising the target Gas but keeping the actual generated block smaller will result in higher profits.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!