Codex side chain

This document looks at the economic viability of running an Ethereum side chain that is specifically tailored for the Codex marketplace. Existing Ethereum rollups and side chains seem to be too expensive by about a factor of 100 for our current storage proof scheme (without proof aggregation). We'd like to find out if running our own side chain could sufficiently lower the transactions costs.

EVM opcode pricing

Ethereum transactions consist of EVM operations. Each operation is priced in amount of gas. Some operations are more expensive than others, mainly because they require more resources (cpu, storage) than others. Gas costs are also specifically engineered to withstand DoS attacks on validators.

Tweaking the gas prices of EVM opcodes does not seem to be the most viable path to lowering transaction costs, because it only determines how expensive operations are relative to one another, they don't determine the actual price. It is also difficult to oversee the security risks.

Gas pricing

The biggest factor that determines the actual costs of transactions is the gas price. The transaction costs is determined according to the following formula as specified by EIP-1559:

fee = units of gas used * (base fee + priority fee)

The base fee is calculated based on how full the latest blocks are. If they are above the target block size of 15 million gas, then the base fee increases. If they are below the target block size, then the base fee decreases. The base fee is burned when the transaction is included.

The priority fee is set by the transaction sender, and goes to the validators. It is a mechanism for validators to prioritize transactions. It also acts as an incentive for validators to not produce empty blocks.

Both priority base fee and transaction fee go up when there is more demand (submitted transactions) than there is supply (maximum transactions per second). This is the main reason why transactions are as expensive as they are:

"No transaction fee mechanism, EIP-1559 or otherwise, is likely to substantially decrease average transaction fees; persistently high transaction fees is a scalability problem, not a mechanism design problem" -- Tim Roughgarden

The scalability problem

Ultimately high transaction costs is a scalability issue. And unfortunately there are no easy solutions for increasing the amount of transactions that the chain can handle. For instance, just increasing the block size introduces several issues. Increasing block size increases the amount of resources that validators need (cpu, memory, storage, bandwidth). This means that it becomes more expensive to run a validator, which leads to a decrease in the number of validators, and an increase in centralization. It also increases block time, because there is more time needed to dissemminate the block. And this actually decreases the capacity of the network in terms of transactions per second, which counters the positive effect that you get from increasing the block size.

Validator costs

To get an idea of the actual costs for running a chain, we estimate the hardware costs associated with executing one gas. This should give us an idea of the lowest price at which it is still economically viable to run validators.

Back of envelope calculations

Pylogon PoS:

has about 100 validators
requires amazon m5d.4xlarge
which costs $285 per month
gas limit is 30 000 0000
in a month there are approximately 1 100 000 000 blocks
which means costs per gas are 100 * $285 / (30 000 0000 * 1 100 000 000) = $ 0.0000000000008
while average gas price is $0.00000002 (a factor of 25000 higher than the cost)

Ethereum:

has about 1 000 000 validators
validator costs: $20 / month
gas limit is 15 000 0000 on average
in a month there are approximately 215 000 blocks
which means costs per gas are 1 000 000 * 20 / (15 000 000 * 215 000) = 0.000006
while current gas price is $0.000035 (a factor of 6 higher than the cost)

TODO: check calculations

It seems that Ethereum gas price is about 1 order of magnitude higher than the the actual costs for the resources required.

The Polygon PoS gas price is about 4 orders of magnitude higher than the actual costs for the resources needed.

Conclusion

The main reason why transactions are too expensive on existing chains and rollups is because they are utilized to their capacity. This creates a higher demand than there is supply, increasing prices. The actual costs of running a chain seem to be ok for running the Codex marketplace, but we need to either increase capacity or limit the amount of transactions to ensure that transaction prices do not become too high.

So it seem to be viable to start with a side chain for Codex, while there is no high demand yet. This gives us time to work on reducing the number of transactions (by aggregating proofs for instance), and increasing the transactions per second (by sharding for instance) as the Codex network becomes more popular.

5.7 KiB Raw Blame History