Vitalik Buterin Proposes Data Storage Fees for Ethereum

Blockchain, Ethereum, News

Concern has been mounting in recent months about the amount of data storage space used on nodes around the globe for various blockchains like Ethereum and Bitcoin. This is in addition to the increasing levels of energy required to mine the cryptocurrencies.

As crypto becomes more and more popular, the blockchains could grow to such a size that makes them unusable. The cost of data storage hardware is much lower than it was a decade ago and the internet is now much faster, but for some users, it can still take over a week to download the Bitcoin blockchain.

In 2017, a disagreement regarding the scalability of Bitcoin, in the form of SegWit adoption, led to the hard fork that created Bitcoin Cash.

Ethereum was released in 2015 and supports smart contracts that are not currently available with Bitcoin. Ethereum uses the ERC-20 protocol to permit tokens from one project to be interchangeable with tokens of another, and this has made it very popular with ICOs. The logic in the smart contract is used to create a decentralized app (DApp), and there are now over 1200 Dapp’s, like CryptoKitties, running on the Ethereum network.

Currently, users of the Ethereum blockchain pay to add a transaction to the database, but the proposal is to also charge users a fee to rent space on the database. So the longer you want your record to remain in the database, the more you will pay. This would be a fundamental change, and Vitalik Buterin has outlined how the rental fees might work.

Vitalik’s initial suggestion is that the Ethereum blockchain shouldn’t be allowed to expand to more than 500GB which is 2 or 3 times the current size of the Bitcoin blockchain. Based on this maximum size, the rental cost per 1000 bytes, per annum, would be 0.001 ETH. So a 24,000-byte smart contract, 0.024 ETH, would cost around $15 per year based on 1 ETH trading at $625. He points out that the rental fees will obviously fluctuate as the price of ETH goes up and down. Based on the market rate of ETH today of around $450, the annual fee would be less than $11.

Ethereum is looking to incorporate sharding which would split the database across nodes rather than the full blockchain being on each node. Each shard would be up to the 500GB maximum with the total storage being 5TB. Vitalik confirms that when sharding is introduced, it will reduce the fees by a factor of 100. The proposal to introduce data storage fees is to ensure “contracts that developers and users forget and stop caring about should disappear from the state by default.”

The concept of data storage fees is likely to be fiercely debated in the coming months.  One Ethereum Discourse user wrote: “I think rent fees are an awful idea, to be honest. It completely breaks the original promise made by the Ethereum project: Build unstoppable applications. You can’t call an application unstoppable if it gets shut down for not paying rent”.

Another user wrote: “I don’t see how this wouldn’t irreversibly DESTROY Ethereum as an ecosystem.”

Vitalik has followed up with a suggestion of how smart contracts that are in a “sleep state” because of unpaid storage fees might be handled. This hopefully goes some way to addressing concerns of DApp developers and end users, but the debate is likely to run and run.

Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.

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