A new Ethereum Improvement Proposal (EIP) which aims to decrease the network’s mining reward is currently being debated. EIP-2878 looks to drop the block reward to just 0.5 ETH.

Those behind the new EIP claim it will bring annual inflation down and preserve the purchasing power of ether. However, those opposed say the change will threaten overall network security.

ConsenSys Managing Director John Lilic, along with Ledger’s Global Head of Client Success, Jerome de Tychey, proposed EIP-2878 on August 11. They posted the EIP on Ethereum Magicians, a forum for technical Ethereum discussion.

EIP-2878: Block Reward Reduction to 0.5 #ETH #Ethereum is currently paying a 2.52x higher block reward than #Bitcoin. It's time for the community to consider #BlockRewardReductionEIP2878https://t.co/g0zondATC4

— John Lilic (@JohnLilic) August 15, 2020

The EIP, if approved, would reduce the block reward miners receive for each block added to the chain. The proposal suggests a new reward of 0.5 ETH, instead of the current 2 ETH block reward.

The rationale behind the change, according to the authors, is that Ethereum’s annual inflation is the highest of the top four proof-of-work blockchains. The proposal intends to bring ether’s inflation schedule further inline with bitcoin’s.

Block reward reductions of this nature have typically accompanied the diffusion of “difficulty bombs” on the network. There have been two prior reductions. However, the reward did not fall with the most recent diffusion, known as Muir Glacier.

Unlike the Bitcoin network, changes in issuance rate are not scheduled by Ethereum’s network rules. There is no Ethereum halving to control the rate of inflation.

The EIP-2878 authors’ reason that the lack of a block reward decrease with Muir Glacier breaks the status quo. They add:

Over-paying for block validators is an inefficiency that negatively affects all ETH holders, as it unnecessarily inflates the montary [sic] base and reduces the purchasing power of all Ether holders.

The proposal states that the forthcoming shift to proof-of-stake will further increase inflation on the network. Mining will continue at first, with additional ETH added to the circulating supply by stakers.

The authors estimate that the combination of miners and stakers earning rewards will result in an inflation rate of around 5%. This would put it about 2.81x higher than that of bitcoin.

The EIP suggests that a block reward of 0.55 ETH would be more suitable. However, they also reason that an even lower reward of 0.5 ETH, based on the growth in transaction fees would be preferable.

Ethereum miners have expressed concerns about the block reward reduction. Those mining on GPUs are particularly critical of the proposal. Previous block reward reductions have been between 40% and 33%. A drop from 2 ETH to 0.5 ETH would represent a 75% decrease.

Such a drop would threaten the profitability of miners that supported the network through the 2018 market drop. This would potentially force miners from the network, reducing its overall security.

Multiple GPU miners accuse supporters of the EIP of opting for a compromise in network security to protect the interests of investors. One wrote:

I must admit, it feels really bad to be treated as a necessary evil to be paid out the minimum possible to incentivize us to keep our lights on just long enough to make the transition to 2.0 work.

The same user commented that it would be foolish to tamper with block rewards and, by extension, network security prior to transitioning to proof-of-stake. They added:

… it makes sense to ensure the house we’re moving into is sturdy before dismantling the old one.

Although such a change would be radical, particularly relative to previous reward reductions, it’s nothing more than a proposal for now. As Ethereum Foundation contributor Hudson Jameson points out, the EIP doesn’t have widespread community support.

It seems like a pretty new EIP without obvious community support so I don't really have that much to comment on. I did inform the authors that it would be a good idea to consider the impact of the reduction combined with EIP 1559.

— Hudson Jameson (@hudsonjameson) August 17, 2020

The post Proposal to Cut Ethereum’s Annual Inflation Rate Met With Miner Criticism appeared first on BeInCrypto.

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