EIPs/EIPS/eip-1295.md

eip	title	author	discussions-to	status	type	category	created
1295	Modify Ethereum PoW Incentive Structure and Diffuse Difficulty Bomb	<Brian Venturo (@atlanticcrypto)>	https://github.com/atlanticcrypto/Discussion/issues/1	Draft	Standards Track	Core	2018-08-05

Simple Summary

Network security and overall ecosystem maturity warrants the continued incentivization of Proof of Work participation but allows for a reduction in ancillary ETH issuance and the removal of the Difficulty Bomb. This EIP proposes a reduction of Uncle and removal of Nephew rewards while diffusing and removing the Difficulty Bomb with the Constantinople hard fork.

Abstract

Starting with CNSTNTNPL_FORK_BLKNUM the client will calculate the difficulty without the additional exponential component. Furthermore, Uncle rewards will be adjusted and Nephew rewards will be removed to eliminate excess ancillary ETH issuance. The current ETH block reward of 3 ETH will remain constant.

Motivation

Network scalability and security are at the forefront of risks to the Ethereum protocol. With great strides being made towards on and off chain scalability, the existence of an artificial throughput limiting device in the protocol is no longer warranted. Removing the risk of reducing throughput through the initialization of the Difficulty Bomb is "low-hanging-fruit" to ensure continued operation at a minimum of current throughput into the future.

The security layer of the Ethereum network is and should remain robust. Incentives for continued investment into the security of the growing ecosystem are paramount. At the same time, the ancillary issuance benefits of the Ethereum protocol can be adjusted to reduce the overall issuance profile. Aggressively adjusting Uncle and removing Nephew rewards will reduce the inflationary aspect of ETH issuance, while keeping the current block reward constant at 3 ETH will ensure top line incentives stay in place.

Specification

Remove Difficulty Bomb

For the purposes of calc_difficulty, simply remove the exponential difficulty adjustment component, epsilon, i.e. the int(2**((block.number // 100000) - 2)).

Adjust Uncle and Nephew rewards

If an uncle is included in a block for block.number >= CNSTNTNPL_FORK_BLKNUM such that block.number - uncle.number = k, the uncle reward is

new_uncle_reward = (3 - k) * new_block_reward / 8

This is the existing pre-Constantinople formula for uncle rewards, adjusted to reward 2 levels of Uncles at a reduced rate.

The nephew reward for block.number >= CNSTNTNPL_FORK_BLKNUM is

new_nephew_reward = 0

This is a removal of all rewards for Nephew blocks.

Rationale

The Difficulty Bomb was instituted as a type of planned obsolescence to force the implementation of network upgrades with regular frequency. With the success of and resulting investment in the Ethereum protocol, these network upgrades have been secured through outright adoption and the size of the development community. With a result of the Difficulty Bomb being a reduction in effective network throughput and the risk of inaction inside the development community being reduced substantially, the original purpose of the Difficulty Bomb seems to have been diffused itself. With the focus on scalability for the protocol, eliminating a mechanism whereby the throughput of the network can be limited artificially, due to any circumstance, is a logical step to ensure continued minimum network operation at the current throughput level.

Through August 4th, the 2018 year to date reward issued to Uncle blocks totaled over 635,000 ETH. The average reward per Uncle totals 2.27 ETH. The year to date average Uncle rate is 22.49%. Using the year to date metrics, the ongoing average ETH paid as an Uncle reward per block is 0.51 ETH plus the Uncle inclusion reward of 0.021 ETH (0.09375 ETH * .2249), total Uncle related reward per block being over 0.53 ETH. With total year to date block rewards totaling approximately 3,730,000 ETH, the network has paid an additional 17pct in Uncle rewards. This is issuance that can be reduced while still maintaining the overall integrity and incentivization of network security.

Reducing the issuance of ETH in rewarding Uncle blocks (forked blocks caused by latency in propagation, a multi-faceted problem) should directly incentivize the investment in technologies and efficiencies to reduce the overall network Uncle rate which may lead to a reduction in Network wide Uncle rates, reducing ancillary issuance further.

Reducing the Uncle rewards from the current specification to the proposed will yield two levels of ancillary ETH issuance for Uncles:

Level 1 Uncle -> 0.75 ETH Level 2 Uncle -> 0.375 ETH

These levels are sufficient to continue incentivizing decentralized participation, while also providing an immediate economic incentive for the upgrade of the Ethereum node network and its tangential infrastructure.

The Nephew reward structure should be entirely eliminated.

With a reduction to the Uncle and removal of the Nephew reward, ancillary ETH issuance should drop (under normal market conditions, i.e. 22.49% uncle rate) by over 75pct and total ETH issuance from the successful sealing and mining of valid blocks should drop over 10pct.

Paired with the diffusal and removal of the Difficulty Bomb, this proposal strikes a balance between ensuring status quo network throughput, reducing overall ETH issuance, and continuing top line incentives for investment in infrastructure and efficiencies to continue expanding the Ethereum protocol's operational security.

Backwards Compatibility

This EIP is not forward compatible and introduces backwards incompatibilities in the difficulty calculation, as well as the block, uncle and nephew reward structure. Therefore, it should be included in a scheduled hardfork at a certain block number. It's suggested to include this EIP in the second Metropolis hard-fork, Constantinople.

Test Cases

Test cases shall be created once the specification is to be accepted by the developers or implemented by the clients.

Implementation

Forthcoming.

Copyright

Copyright and related rights waived via CC0.