ZIP: 235
Title: Burn 60% of Transaction Fees
Owners: Jason McGee <jason@shieldedlabs.net>
        Zooko Wilcox <zooko@shieldedlabs.net>
        Tomek Piotrowski <tomek@eiger.co>
        Mariusz Pilarek <mariusz@eiger.co>
        Paul Dann <paul@eiger.co>
Original-Authors: Nathan Wilcox
Credits:
Status: Draft
Category: Ecosystem
Created: 2023-09-21
License: BSD-2-Clause
Discussions-To: <https://github.com/zcash/zips/issues/924>

Terminology

The key words “MUST”, “SHOULD”, “SHOULD NOT”, “MAY”, “RECOMMENDED”, “OPTIONAL”, and “REQUIRED” in this document are to be interpreted as described in RFC 2119. [1]

The term “network upgrade” in this document is to be interpreted as described in ZIP 200. [2]

“Block Subsidy” - the algorithmic issuance of ZEC on block creation. Part of the consensus rules. Split between the miner and the Dev Fund. Also known as Block Reward.

“Issuance” - The method by which ZEC becomes available for circulation on the network.

“We” - the ZIP authors, owners listed in the above front matter

Abstract

We propose to burn 60% of transaction fees, while the remaining 40% be directed as before, providing a deflationary effect, and building the groundwork for long-term support of the Zcash network via the new block subsidy rules proposed by ZIP-234.

Motivation

ZIP-233 (“Network Sustainability Mechanism: Burning”) describes a method by which ZEC can be burned to support network sustainability.

By introducing a requirement that a certain proportion of transaction fees be burned, we ensure that ZEC will be removed from circulating supply to contribute to the long-term sustainability of the network as described below:

Benefits to the Network

  1. Network Sustainability: This mechanism involves temporarily reducing the supply of ZEC, similar to asset burning in Ethereum’s EIP-1559, but with long-term sustainability benefits, as the burned funds effectively boost future mining rewards, making it an attractive option for current and future Zcash users.
  2. Incentivizing Transaction Inclusion: By maintaining a 40% share of transaction fees for miners, we continue incentivizing miners to prioritize including transactions in their blocks. This helps ensure the continued efficient processing of transactions and supports a robust and responsive network.
  3. Aligning Interests: Burning transaction fees aligns the interests of miners with the long-term health of the network, incentivizing them to prioritize security and efficiency. As miners focus on maintaining a robust network, overall adoption and usage can increase, leading to higher transaction volumes in the long run. This structure discourages short-term profit-seeking behaviors, as miners benefit more from a stable and thriving ecosystem than from engaging in malicious activities that could undermine the network’s reputation and security.
  4. Future-Proofing the Network: Burning a portion of transaction fees is a forward-looking approach that prepares the Zcash network for future challenges and opportunities. It establishes a financial buffer that can be instrumental in addressing unforeseen issues and seizing strategic advantages as the Zcash ecosystem evolves.

Requirements

Specification

Consensus Rule Changes

For a given block, the coinbase transaction MUST have a burnAmount that is greater than or equal to floor(transactionFees * 6 / 10).

Previous transaction versions are not supported for coinbase transactions, due to there being no explicit mechanism to burn the required funds.

Deployment

The implementation of this ZIP MUST be deployed at the same time or after ZIP-233 (“NSM: Burning”), and ZIP-234 (“NSM: Issuance Smoothing”).

Rationale

We believe the proposed changes to be relatively low-impact in terms of implementation and protocol changes. Additionally, transaction fees are currently small enough that the reduction in miner fees is unlikely to be a concern.

Estimated impact on miners

Over 100,000 blocks starting at block 2235515, there were 316130 transactions. 60608 of them are categorized as ‘sandblasting’ transactions. The remaining transactions have an average of 5.46 logical actions (see ZIP-317 [4]).

The total fees paid to miners from those transactions, assuming the ZIP-317 regime, would be 87.86 ZEC. 100,000 blocks is approximately 3 months of blocks. Extrapolating to a year, we would expect 351.44 ZEC in fees paid to miners over a year.

If 60% of these fees burned, that would be 210.864 ZEC per year. [5]

Considerations for the Future

If transaction fees were to increase, further modifications can easily be proposed to alter the 60%/40% split. Finding the optimal fee split may require an iterative approach involving adjustments based on real-world data and network dynamics.

Looking further into the future, there may come a time when the transaction fees become greater than the block subsidy issuance. At that time we may need to reconsider the 60/40 split. However, this will likely not be the case for the next 8-10 years due to forecasts based on issuance models and network traffic.

Further ZIPs may be proposed to burn ZEC in various ways to support network sustainability, including but not limited to:

References

[1] RFC-2119: https://datatracker.ietf.org/doc/html/rfc2119

[2] ZIP 200: Network Upgrade Mechanism

[3] ZIP 233: Establish the Zcash Sustainability Fund on the Protocol Level

[4] ZIP 317: Proportional Transfer Fee Mechanism

[5] https://github.com/eigerco/zsf-fee-estimator