In praise of zero-fee blockchains

in #blockchain6 months ago

A friend, passionate about DAOs, has pointed me to a recent peer-reviewed research paper analyzing DAO data collected from three DAO platforms (Aragon, DAOstack and DAOhaus) on the Ethereum blockchain.

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"A comparative analysis of the platforms for decentralized autonomous organizations in the Ethereum blockchain" Faqir-Rhazoui et al., Journal of Internet Services and Applications (2021) 12:9

I will not analyse the paper in detail but I would like to comment a bit on a specific aspect, in order to point to the "elephant in the room".

Consider firstly this paragraph:

"DAOs are considered autonomous because, unless its code explicitly says so, they are independent from their creators. Their operations follow the rules embedded in its code, together with the (human) governance of its members. Moreover, being deployed on a public blockchain, they are censorship-resistant, since there is no central controller that may turn off the DAO and its provided service. Thus, as long as there are members willing to execute their code, DAOs will continue operating, e.g. providing services, purchasing/selling resources or hiring people."

It can be inferred from the above that one of the defining characteristics of DAO is the censorship-resistance, conferred by the underlying public blockchain. That is, a DAO is as censorship-resistant as the underlying blockchain it runs on.

Then consider secondly this paragraph:

"In mid-2020, the use of the Ethereum mainnet spiked, increasing dramatically the fees to process any transaction (e.g. voting, DAO creation). As a result, DAO platforms searched for alternatives to avoid such expensive prices. One of the most successful solutions was the case of the xDai network. xDai is a blockchain designed for fast and inexpensive transactions. It has a bridge with Ethereum mainnet (it is a sidechain) facilitating the move of tokens from each other. Table 1 shows the cost to create a DAO (summon) and to vote in the DAOhaus ecosystem, both in the Ethereum mainnet and xDai. As the table shows, the mainnet is orders of magnitude more expensive (and slow) than xDai. Note xDai, in turn, is less decentralized than Ethereum and it is dependant on it."

Table 1 Comparison of the prices of two DAOhaus operations and the average speed, in both the Ethereum mainnet and xDAI networks in October 2020

NetworkSummonVoteSpeed
mainnet$80$55 tps
xDai$0.01$0.00170 tps

It is not difficult to understand that what we are actually looking at is a trade-off which this type of blockchain architecture imposes: the "more decentralized" a blockchain is, the "higher its censorship resistance" (good, to a certain extent at least) but also the "higher its fees" (bad) and the "slower its speed" (bad).

Why? because of a "by design", fundamental misalignment of incentives: users want "censorship resistance" (good) so they all flock to the most decentralized blockchain, which, by highly increasing usage, "slows down the network" (bad) and, by increasing demand for transactions (with supply limited) "increases the price of transactions" (bad). This is basic market economics (when demand increases, if the supply is inelastic then the price will increase).

On a side note: I personally never heard of xDai, it might as well be a "one node blockchain" for all I know. Even if it's a 15 or 150 node blockchain, the same logic applies: if the cryptoeconomic model is "pay per use" then its censorship resistance will increase proportionally to its cost and inversely proportional to its speed.

On a second side note: the increase in aggregate fees collected by the network also increases the power the miners as a group wield, thus giving them not only the incentives but also the means to manipulate the system in order to increase the value they extract even more (see the MEV epidemic, the shameful disease of Ethereum)

In contrast, blockchains such as steem and hive offer free transactions to the users and mutualise the network operating cost by allocating a fixed share of the total generated crypto to the miners / witnesses.

In so doing, they align the incentives of miners and users: in order for the miners / witnesses to increase their income (in the fiat world), they have to rely on the exact same mechanism as normal users: an increase in the price of the coin. This fundamental design difference cannot be overemphasized.

A valid counterpoint is that neither steem nor hive are as censorship resistant as Ethereum. I've indirectly answered to that point in past articles. In a nutshell, I believe "decentralization" is not an unadulterated good ("the more, the better") but rather a (very) useful mechanism to mitigate the downside of much more efficient centralized systems. Just like salt in food, "decentralization" should be used in moderation.

Conclusion

I griped already not so long ago about the several design flaws of Ethereum, including the IT heresy of strong coupling between "computing" and "data" tiers. The fact that in the meantime the price of ETH was about stable or even increased illustrates another one of my gripes with this blockchain, the intrinsic dishonesty of its narrative: while touting "decentralization", Ethereum is a magnet for blockchain enthusiasts and an "über centralizer"! On a funnier note, it reminds me of Kaa ...


kaa.gif
Trusssst in me ... I'm gonna MEV you to sleep ...

Bitcoin has a similar "pay per use" economic model. The big difference is that, in its BTC flavour, its main use case is ... hodl-ing, i.e. not using the blockchain unless strictly necessary. Bitcoin is more like a "call" option on abuse of power in our centralized world: the higher the risk of centralized power being abused, the higher the price of BTC. There is thus not a big incentive to actually transact and increase the demand for blockchain space.

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Salut Sorin,
Désole de faire un commentaire hors propos, mais cela te dérangerait-il de renouveller ton support pour HiveBuzz comme tu l'as fait cette années.
Cela permattrait à l'équipe de continuer son travail de gamification de Hive.
Merci beaucoup!
https://peakd.com/me/proposals/199

Avec plaisir. Une idee serait d'améliorer les UI autour des proposals. J'aimerais avoir un tableau avec toutes les proposals que je soutiens, quand est-ce que le soutien expire, le progrès de chaque proposal, etc.

Désolé pour ma réponse tardive et merci pour ton soutien.
Oui, tes idées au sujet de la présentation des proposals sont bonnes. Le mieux serait de les adresser directement au développeurs des front-ends.

Merci encore et joyeux Noël à toi et tes proches. 🎅

Joyeux Noël à toute ta famille également

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Simple and interesting.... I've never thought of it this way.

Bonjour Sorin,
Je viens encore te solliciter avec une demande de support pour un projet.
Pourrais-tu voter pour la proposition des Hive Authentication Services? Cela m'aiderais énormément! Merci.
https://peakd.com/me/proposals/194

Je te souhaite une excellent année 2022! ✨🥂✨

Avec plaisir . Une excellente année 2022 a toi et a tous ceux qui te sont chers!

Merci (pour ton support aussi)

Thank yuo for your daily upvotes in my actifit posts! !LUV

You're welcome !

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