[ZIP 317] Proportional Transfer Fee Mechanism

zip-proportional-output-fee-mechanism-pofm.rst

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+::
+
+  ZIP: XXX
+  Title: Proportional Output Fee Mechanism (POFM)
+  Owners: Aditya Bharadwaj <nighthawk24@gmail.com>
+  Credits: Madars Virza, Kris Nuttycombe
+  Status: Draft
+  Community Status: Request for comments : https://forum.zcashcommunity.com/t/zip-proportional-output-fee-mechanism-pofm/42808
+  Category: Wallet
+  Created: 2022-08-15
+  License: MIT
+
+
+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. [#RFC2119]_
+
+"Z" refers to shielded address.
+"T" refers to transparent address.
+
+"POFM" refers to the proposed change in conventional fee as described in 
+this ZIP.
+
+The term "default transaction fee" in this document is in reference
+to Z to Z, T to Z & Z to T transaction fee paid to miners on the Zcash network
+for the work on including the shielded transaction in a block.
+
+
+Abstract
+========
+
+The goal of this ZIP is to change the conventional transaction fees for
+Shielded transactions and get buy-in from wallet developers, miners & Zcash users.
+
+With an updated transaction fee formula, miners will be compensated fairly for
+including transactions with a high number of outputs, while still allowing low fees 
+for regular shielded transaction use cases.
+
+
+Out of Scope for this Proposal
+============
+
+Discussion around transaction fees for T to T.
+
+
+Motivation
+============
+
+In light of recent network activity, it is time to review and update the 
+standard 1,000 zats transaction fees set in ZIP-313.
+
+
+The conventional transaction fee presently is 0.00001 ZEC or 1,000 zats per
+ZIP-313, that allowed exploration of novel use cases of the Zcash blockchain.
+The Zcash network has operated for almost 2 years of 1,000 zats fee per shielded 
+transaction without consideration for the total number of inputs and outputs in the transaction.
+This has resulted in high output transactions with 1,100 outputs costing the same as 
+transactions with 2 outputs.
+
+
+Requirements for consensus
+-------------------------
+
+Wallet developers must update the fees to the proposed formula by Madars and 
+Kris Nuttycombe [#madars-1]_
+
+min_fee = base_fee * max(0, #inputs + #outputs - 4)
+
+Where #inputs and #outputs also take into account transparent inputs and outputs. 
+Otherwise, the fee structure (if not otherwise changed) will preferentially encourage 
+usage of the transparent part of the chain.
+
+The change to the conventional transaction fees must be undertaken soon
+as the Zcash network has been under heavy load with high-output transactions while 
+regular shielded transactions with 2 outputs are affected when relying on current 
+light wallet infrastructure.
+
+The following parties need to be part of the consensus:
+
+* The technical aspects of a changing conventional fee based on outputs 
+need to be evaluated.
+* A guarantee from mining groups is required to include the updated POFM 
+transactions in the next block.
+* Wallet developers need to update the software to use the new fee.
+* Zcash documentation and community outreach must be undertaken to
+make the change known.
+
+
+Requirements for adoption
+-------------------------
+
+The change to the conventional transaction fees should be undertaken soon
+as it gets difficult to gain consensus with the growth in the network
+of wallets, exchanges, miners, and third parties involved.
+
+The following parties need to be part of the consensus:
+
+* Support from mining groups is required to include the updated conventional
+  fee transactions in the next block.
+* Wallet developers need to provide a commitment to update the software to use
+  the new fee.
+* Zcash documentation and community outreach must be undertaken to make the
+  change known.
+
+
+Security and privacy considerations
+-----------------------------------
+
+Unique transaction fees may reveal specific users or wallets or wallet versions,
+which would reduce privacy for those specific users and the rest of the network.
+Hence this change should be accepted by a majority of shielded transaction
+software providers before deploying the change.
+
+Long term, the issue of fees needs to be re-visited in separate future
+proposals as the blocks start getting consistently full. New ZIPs with 
+scaling solutions, will need to be evaluated and applied.
+
+
+Denial of Service Vulnerability
+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
+
+A transaction-rate-based denial of service attack occurs when an attacker
+generates enough transactions over a window of time to prevent legitimate
+transactions from being mined, or to hinder syncing blocks for full nodes
+or miners.
+
+There are two primary protections to this kind of attack in Zcash: the
+block size limit, and transaction fees. The block size limit ensures that
+full nodes and miners can keep up with the blockchain even if blocks are
+completely full. However, users sending legitimate transactions may not
+have their transactions confirmed in a timely manner.
+
+Variable fees could mitigate this kind of denial of service: if there are
+more transactions available than can fit into a single block, then a miner
+will typically choose the transactions that pay the highest fees. If
+legitimate wallets were to increase their fees during this condition, the
+attacker would also increase the fees of their transactions. It is
+sometimes argued that this would impose a cost to the attacker that would
+limit the time window for which they can continue the attack. However, there
+is little evidence that the actual costs involved would be a sufficient
+disincentive.
+
+This proposal does not alter how fees are paid from transactions to miners.
+
+Wallet developers and operators should monitor the Zcash network for rapid
+growth in transaction rates.
+
+
+Specification
+=============
+
+Wallets implementing this specification will use a conventional fee in the form of 
+min_fee = base_fee * max(0, #inputs + #outputs - 4) 
+starting from block 180,000.
+
+
+Transaction relaying
+--------------------
+
+zcashd, and potentially other node implementations, implement fee-based
+restrictions on relaying of mempool transactions. Nodes that normally relay
+transactions are expected to do so for transactions that pay at least the
+conventional fee, unless there are other reasons not to do so for robustness
+or denial-of-service mitigation.
+
+
+Mempool size limiting
+---------------------
+
+zcashd limits the size of the mempool as described in [#zip-0401]_. This
+specifies a *low\_fee\_penalty* that is added to the "eviction weight" if the
+transaction pays a fee less than the proposed increase with POFM.
+
+
+Support
+=======
+
+The developers of the following wallets intend to implement the updated fee mechanism:
+
+* Zecwallet Suite (Zecwallet Lite for Desktop/iOS/Android & Zecwallet FullNode);
+* Nighthawk Wallet for Android & iOS;
+* ECC Mobile SDKs for iOS & Android
+* zcashd built-in wallet 
+
+
+Acknowledgements
+================
+
+Thanks to Madars Virza for suggesting the fee mechanism. And Kris Nuttycombe to 
+suggest optimization.
+
+.. [#madars-1] `Madars concrete soft-fork proposal <https://forum.zcashcommunity.com/t/zip-reduce-default-shielded-transaction-fee-to-1000-zats/37566/89?u=aiyadt>`_