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Vitalik Wants You to Pay to Slow Ethereum’s Growth
Could adding a new fee help preserve ethereum in the long term?
It’s a contentious statement in light of the debates ongoing across blockchains over how and when users should pay to support what amount to global computing networks. However, the concept is now gaining notable momentum on ethereum, most recently from the creator of the world’s second-largest blockchain himself, Vitalik Buterin.
Buterin’s concept, described in a recent blog post, revolves around so-called “rent fees,” whereby users would be asked to pay to use the network based on how long they’d like their data to remain accessible on the blockchain.
The idea has recently seen interest generally, as ethereum developers have sought to cope with the platform’s increased adoption, and, in turn, the increased amount of data being added that all network nodes need to store.
In short, it’s a tragedy of the commons issue – if too many people use the resource for free, the network starts taking on the costs itself. And there’s plenty of evidence to suggest that there is already reason to worry.
With rising use spurred by popular apps and ICOs, notable developers, including ethereum researchers Vlad Zamfir and Phil Daian, believe the problem needs to be addressed now.
“No one likes talking about rent, but we need to have this conversation,” ethereum developer and Thiel fellow Raul Johnson recently tweeted.
“Core developers need to relay this information to the smart contract developer community ASAP to get their opinions on the matter,” he continued, adding:
“The current system as it stands is unsustainable.”
Still, Buterin’s backing could be a sign that momentum might build around the idea.
So far, he has broached the idea with a pair of proposals on the subject, including a succinct possible solution he calls “a simple and principled way to compute rent fees.” And Buterin’s first proposal is as simple as its title suggests.
The idea is to compute fees based on a long-term limit on the “state,” a slice of special ethereum data that node operators need to store, which tracks who owns the current information about all apps (including user balances, who has posted so much data in, say, a Twitter replacement app and so on).
Under the proposal, state data stored in a node computer’s RAM – now about 5GB – will never be allowed to exceed 500 GB. To ensure this, users will have to pay fees based on how long their data is stored. In this way, data is kept in check, since fees will grow if storage creeps toward that limit.
One notable part of Buterin’s proposal is that he tries to incorporate a scaling change that ethereum developers have long wanted to add to the platform.
Although the most recent roadmap claims deployment is still years away, “sharding,” as it’s known, could potentially boost the amount of resources a database can handle by splitting up the data. In ethereum, the idea is, each node wouldn’t have to store all of ethereum’s historical data – just a slice of it.
“With sharding, the maximum acceptable state size would be per-shard, so the above fees would be decreased by a factor of 100,” Buterin said.
Buterin also tries to address another key problem with rent: its bad user-experience. Most rent proposals today would require users to know how long their data will need to live ahead of time, which would be prone to error.
His second proposal explores a way of quashing this annoying guessing game by letting users use their state even after it has expired. Essentially, they would prove that their state existed at a previous point in time, with the help of a cryptographic technique called a “Merkle proof.”
One problem with all this, though, is that fees, kind of like taxes, are never popular.
Bitcoin’s years-long debate, for example, mostly centered on fees and the trade-offs associated with them. If fees are increased, less data will be stored, making full nodes easier to run. The downside, of course, is it would make the cryptocurrency more expensive to use.
One question is whether ethereum users and developers will react the same way, arguing “the rent is too damn high.” In this way, Johnson worries that suddenly adding extra fees would alarm developers who have already deployed apps on ethereum.
Johnson argues for changes that aren’t so knee-jerk and should be phased in slowly to give developers time to adjust.
Not to mention, some believe a similar rent needs to be applied to all cryptocurrencies. Indeed, scaling problems – and the associated fees – are a problem across blockchains.
Daian went as far as to argue that bitcoin needs to apply the same model. Like ethereum, bitcoin currently doesn’t charge for the lifetime of a coin.
“Bitcoin is not free of these issues,” he said, arguing that its simpler model incentivizes state bloat in a variety of ways, “exposing users to a variety of other consequences of mispriced storage.”
Pricing resources to the right degree is such an important area of research, that Daian, a smart contract researcher at IC3, and others at the institute have set up an initiative called Project Chicago dedicated to the effort.
Even if this is a lesser-explored area and researchers haven’t yet found a concrete solution, he’s optimistic.
“No cryptocurrency has figured out good models for pricing these resources thus far, and ethereum’s storage rent represents a step in the right direction towards these goals.”
Hard drive image via Shutterstock
A G20 Crypto Policy? Let’s Hope It’s a Pipe Dream
“Let’s form a committee to explore the formation of an exploratory committee!”
OK, that’s not quite a fair summation of the recommendations on cryptocurrency that came out of the G20 meeting of finance ministers last week. But it’s safe to say the globally unified policy that the world’s economic leaders are now seeking could be a long time coming, if it comes at all.
And whether such coordination would be a positive for the crypto community is also questionable.
For those who were too transfixed on bitcoin’s price gyrations to pay attention to the bureaucrats gathering in Buenos Aires (I don’t blame you a bit), here’s a quick recap.
The member nations present agreed that cryptocurrencies needed to be examined, but that more information was required before any regulations could be proposed, according to the press briefing by Argentina’s central bank chief, Frederico Sturzenegger.
While that sounds like punting, the members did set a firm deadline in July for recommendations on what data is needed, Sturzenegger told reporters.
Once you’ve digested that, here’s one more spoonful of alphabet soup: In its report to the G20, another intergovernmental body, the Organization for Economic Co-operation and Development (OECD), called for cooperation on studying the tax consequences of cryptocurrencies.
In addition to moving slowly (much slower than the rapidly evolving cryptocurrency markets), the G20 faces other limitations. It can only make recommendations, not set policy, for sovereign nations, and you don’t have to be Steve Bannon to be thankful for that.
And while the G20 includes some big countries, absent are some of the most vocally blockchain-friendly jurisdictions, such as Switzerland, Singapore, Gibraltar and Bermuda, a fact which may further limit the impact of any cooperation among the members.
So, is a globally coordinated policy even possible in the best of times for international cooperation, much less the age of Trump and Brexit?
John Collins, the president of consulting firm Red Flag USA and former head of policy for crypto exchange Coinbase, thinks so.
While there will always be outlier jurisdictions, “to the extent you want to play in the biggest markets in the world, those tend to be the supporters of these international standards,” he said.
As for resurgent nationalism’s threat to global coordination, Collins noted that in this case, cryptocurrency – a technology that knows no borders – “is inherently inconsistent with most nationalist tendencies – which is usually based in sovereign control.”
One successful example of international cooperation Collins cites is the Financial Action Task Force (FATF), an intergovernmental body dedicated to fighting money laundering and terrorism financing.
Countries that don’t follow FATF’s extensive standards (somewhat euphemistically called “recommendations”) for anti-money-laundering (AML) and counter-terrorist financing (CTF) policies get put on a blacklist of “non-cooperative” countries. Aside from losing face, that means residents of a country may have a harder time opening foreign bank accounts or sending money abroad, and may even pay higher interest rates for financing.
Indeed, in Buenos Aires the G20 pledged to implement the FATF standards “as they apply to crypto-assets.”
Now, note the awkward phrasing there. “As they apply to.” The current FATF standards do not address cryptocurrencies. While the FATF has issued guidance on the matter, that’s not the same thing. Only the standards have teeth.
By applying general standards written for the traditional financial system to the brave new world of crypto, the G20 is “taking a circular approach to mitigating AML and CTF around digital currencies and isn’t really addressing digital currencies at all,” said Christine Duhaime, an AML lawyer in Canada who advises digital currency companies.
Nevertheless, the power of the blacklist shows that these transnational bodies can have a strong influence. Another example cited by Collins is the Basel Committee standards for bank capital.
“It’s certainly not easy and the Basel process is particularly deliberative, but it’s certainly not impossible,” Collins said. “And it’s important to remember that, in the case of Basel for example, particular countries who tend to object or slow down these processes, often have deep-rooted and massive industries that they are attempting to protect.”
Yet cryptocurrency, for all the progress it’s made, is neither massive nor deep-rooted, so the industry might not be able to lobby against governments adopting international standards as successfully as, say, small banks in the U.S. fought adoption of the Basel II standard in the early 2000s.
Consistency vs. control
All right, so a global policy on crypto is theoretically possible – but should the community welcome it? According to Collins, who is also a former Senate staffer, it depends on your business model.
In countries such as the U.S. and Japan “that instituted regulatory clarity around exchanges – those businesses centered in those countries have done exceedingly well,” he said. “It gives confidence to users and investors, which is good for the industry.”
But Collins acknowledged that this isn’t just any industry, but one “whose core [goal] is decentralizing power structures.” Hence, “industry compliance and coordination is even more difficult than it is in other competitive industries.”
As someone who appreciates that guiding philosophy of decentralization, I felt a bit of a chill when Collins described a possible future scenario.
“The question will be at what point the policy levers move from the entry and exit points to the financial system [i.e. exchanges where crypto is traded for fiat] to the underlying protocols themselves,” he said. “If that ever happens, that will be a different paradigm that crypto businesses, whatever their model, will likely need to address head on.”
Regulating the protocols? Say what you will about Bannon, thoughts like that make me think it’s good to have such a firebrand in crypto’s corner.
Pipe image via Shutterstock
Written by CoinDesk.com
Crypto Regulator CFTC Chairman Takes Funding Cuts “Incredibly Personally”
CFTC Request For Funding Increase Answered With Budget Cut
It has been reported that the Commodity Futures Trading Commission has received a $1 million dollar cut to its approximately $250 million budget. The agency appears to have taken significant offense to the funding cut – as the CFTC had originally requested a 12 percent increase to its funding, in which it hoped to secure $281.5 million in financial resources.
Congress’ decision to roll-back the regulator’s funding has been taken as a great offense by the institution. Erica Elliott Richardson, a spokeswoman for the agency, stated that the institution’s chairman, Christopher Giancarlo, “takes this budget decrease incredibly personally, and is currently meeting with our finance team to figure out a path forward for the agency.”
“We are absolutely astounded by the decrease in the CFTC’s budget,” Mrs. Richardson added.
SEC Funding Bolstered in Spite of CFTC Cuts
In the recent months, the Commodity Futures Trading Commission has increasingly sought position itself as a major regulatory force with the United States’ emerging cryptocurrency industry. The respective chairmen from the CFTC and the Securities and Exchange Commission (SEC), testified to a Senate Banking Committee regarding their perceptions of the risks and challenges posed by cryptocurrencies last month.
Despite the reduction of the CFTC’s funding, the United States Congress has granted the SEC a budget of $1.7 billion – roughly 3% more than was requested by the agency.
Brett Redfearn, the head of the SEC’s trading and markets division, recently advocated for an extension of the legislative apparatus surrounding the stock market – describing the crypto markets as currently exhibiting qualities of the “Wild West.” Mr. Redfearn stated, “I’m not sure all of the rules would translate over, but there are certainly principles that exist in that space that we have to then apply in some respect to what’s happening with crypto-asset trading.”