Ethereum

Apples of the Infinite Garden: A Children's Book on EIP-7918

Audrey the Auctioneer, Pontus the Ponderer and Therese the Tree Tender have started an apple orchard in a huge garden. The friends have a vision: feeding the world with apples. Let's follow them on their journey 🧵👇

I'll share the story as  thread, but this markdown version may make for a more comfortable reading experience.

Developing transparent finance for @ethereum

I'll share the story as  thread, but this markdown version may make for a more comfortable reading experience. https://notes.ethereum.org/@anderselowsson/AIG

The friends' orchard currently produces an average of 6 fresh apples every 12 seconds. To set the price, Audrey counts how many apples are sold in each 12-second round and keeps the price fixed if exactly 6 apples are sold. She increases the price by around 10% if more than 6 apples are sold (Pontus sells up to 9 apples when working the fastest he can), and decreases it similarly if none or just a few apples are sold. 

This is generally a sound approach. The apples are tasty and the friends are sure there will always be demand if the price becomes low enough. The first day, everything runs smoothly and the price rises and falls as expected with changes in apple demand. You hear Audrey announcing "Apples for $16!", and 12 seconds later "Get your apples for $15!", etc.

However, the next day a very strange thing happens: when Audrey lowers the price, there is no increase in demand. You hear her calling "Apples for $0.01!", a few hours later, "Apples for $0.0001!", and the next morning "Apples for $0.000000001!". 

The friends are stunned, they were sure thousands of people would want apples at these giveaway prices. They know they're selling prime apples, and at this price, millions upon millions of apples could be bought for just a dollar.

Later that day, demand picks up. Customers swarm the stand, waving money to secure an apple. But Audrey follows the same rule as always, raising the price by 10% per round. It takes seven rounds for the price to increase from $0.000000001 to $0.000000002, and this does not seem to have any effect on demand. Customers try to tip extra to jump the queue, but it's difficult to run the stand that way; things were easier when Audrey had control over apple demand.

All in all, it takes six long hours of this commotion until prices return to normal and the line finally thins out. Phew—what a day!

The same pattern repeats for several days and the friends realize that they have to rethink their apple pricing mechanism. But first, they would like to understand what is going on. Perhaps there is some theoretical explanation why the price varies between tiny fractions of a cent and hundreds of dollars?

Pontus goes for a pondering stroll by the parking lot, watching customers arrive. Because the garden is huge, no one can reach it by foot. Some *roll up* in fancy big cars that seem to be real gas monsters. A ZK rover just parked, it must be quite expensive to travel to the store in one of those, perhaps $50? Others arrive by bus and a customer tells Pontus the cheapest ticket is $1. Pontus gets an idea and hurries back to tell the others.

"What if someone only has $0.50 to spend on apples but the bus ticket is $1? They wouldn't be able to buy any apples, no matter how cheap we make them. What if someone has $5 to spend on apples but there are no buses from their house and gas is $10? They also could not buy any apples even if we set the price to 0. We have been thinking about the millions upon millions of apples someone could buy when the price is a tiny fraction of a cent, but did not account for transportation costs."

Therese nods. "We're not even helping people by selling apples for $0.000000001 if they still need to pay $1 for the bus or $10-$50 to go by car. We might as well charge something closer to the bus ticket price. We could adapt if it changes to ensure that we are as fair and helpful as we can be."

Audrey believes this would be great for her auction as well. "I have a great auction mechanism as long as people care about my price tweaks. But when the gas price is much higher than the apple price, nobody cares. I could double the price of an apple from $0.000000001 to $0.000000002, and the total cost of driving here to buy the apple goes from $10.000000001 to $10.000000002. It's like adding a water drop to the ocean."

During their discussion, the friends have figured out that apple demand depends on both apple price and transportation costs. They discuss quirks and alternatives, perhaps bus travelers are just stopping by for a snack on their way home, perhaps demand for apples is inherently rather fixed anyway, and perhaps it is impossible to know how many apples customers will buy on average each auction round as the orchard grows? Perhaps Audrey should just change her auction mechanism? 

While there are many nuances, they want something simple that they can implement tomorrow, yet theoretically sound and generally considered fair and neutral by their customers. The friends therefore decide on the following:

* Therese checks the price of a bus ticket and shares it with Audrey,
* Audrey stops reducing the price when the total cost of the 6 apples that the orchard produces each round equals the bus ticket price.

That's it, although they are still discussing some nuances—perhaps the price of 6 apples should be allowed to fall to 20% of the bus price, etc. While not everyone comes by bus, all transportation costs depend on the gas cost. When the cost for traveling by bus or a Kia Optima changes, the cost for traveling by a ZK rover also changes. The friends are thus ensuring that all customers always care, at least a little, about the apple price that Audrey calls out, and she can therefore do her job regulating apple demand with business running smoothly.

Grown-up are directed to the discussion on Ethereum Magicians.

Grown-up are directed to the discussion on Ethereum Magicians. https://ethereum-magicians.org/t/eip-7918-blob-base-fee-bounded-by-execution-cost/23271