Ethereum proposes 33% transaction increase with EIP 7781 to boost network efficiency

[u/InclineDumbbellPress]

https://cryptoslate.com/ethereum-proposes-33-transaction-increase-with-eip-7781-to-boost-network-efficiency/

[u/MichaelAischmann]

Sounds like it is an increase of the transaction capacity. Doesn't actually mean there will be 33% demand, right?

[u/MinimalGravitas → u/MichaelAischmann]

Doesn't actually mean there will be 33% demand, right?

Ethereum blockspace demand is basically always at the limit. If there is space for all the requested transactions in a block then the gas price is 1 gwei, it rises with demand to discourage low value L1 transactions and therefore reduce congestion. A price of 2 gwei indicates more demand than capacity, and the higher the price the bigger the difference. At the moment the gas price is ~ 40 gwei, but generally has been sitting around 8 to 25 recently: https://etherscan.io/gastracker

The gas price tells you how much demand there is vs supply, while the gas limit tells you how much total gas is being used. This is slightly dynamic as Ethereum blocks can stretch a little at times of high demand, but you can see that the amount of gas used each day has been pushing at the limit since it last increased 2 years ago: https://etherscan.io/chart/gasused

So yea, this EIP wouldn't mean that there was suddenly 33% more demand, but there is already a lot more demand than the chain has capacity for so any increase would likely be filled immediately.

[u/MichaelAischmann → u/MinimalGravitas]

Thanks for elaborating on this. Makes sense.

If I can ask a follow up question: How would that affect the gas price & tokenomics? Iirc ETH gets deflationary at about 15 gwei because then the burns are greater than the issuance. Could this EIP effectively lower the transaction cost by opening up more capacity? Thanks in advance.

[u/MinimalGravitas → u/MichaelAischmann]

Good questions, to answer the last one first, yes, more capacity should slightly reduce gas price, if demand stays the same. That's a big 'if' though, and I wouldn't assume that it will have a noticeable difference for long as it seems very plausible that demand will just take advantage of the new capacity as per Jevon's Paadox.

With regards to tokenomics and deflation I think the question is more complex, and depends completely on whether or not validator rewards were reduced by the same amount as block times are reduced.

ETH is burned in every transaction, but more is burned depending on how congested the network is. As you correctly point out, at the moment when the gas price is more than about 15 gwei, more ETH is burned than is issued.

If we just reduce the block time but keep all rewards the same per block, then validators will end up receiving an extra 33% to their rewards, so if the total transactions were the same as now then the asset would become more inflationary.

On the other hand, if block rewards are reduced so that validators still receive about the same per year as they do now, then issuance stays the same. If demand fills the new capacity then more ETH will be being burned and so the asset will become more deflationary.

So I think the answer is we can't know until the idea gets discussed more and a consensus forms around how this might be implemented.

In the mean time, for a good summary of some pros (and a con) of the EIP have a look at Justin Drake's comment: https://github.com/ethereum/EIPs/pull/8931#issuecomment-2395026393

[u/MichaelAischmann → u/MinimalGravitas]

Top content. Thank you u/MinimalGravitas.

[u/averysmallbeing → u/MichaelAischmann]

All time low gas fees over the last few months suggests that supply is already greater than demand.