Ethereum, the № 2 cryptocurrency right after Bitcoin, has announced plans to charge ‘rent fees’ to store data on the Ethereum blockchain. While Buterin’s pay to play concept is straightforward, the announcement has caused some serious brain melt in the blockchain sphere. Many users are upset and are asking serious questions. Other developers, however, offer reassurance that the fees are a natural outcome given the scale of the Ethereum blockchain and even indispensable to ensuring security of user data. According to BANKEX Foundation Development Lead Alex Vlasov, it is also a brilliant idea to switch the Proof of Stake concept into an economically viable mechanism.

“The growing Ethereum database puts significant storage costs on users. As the Ethereum state won’t stop growing, the increasing costs of storing the state will make fewer and fewer people choose to run full nodes”, explains Vlasov.

On one hand, data still needs to be stored and the costs of storing should be covered. This is reasonable. On the other hand, however, data storage might become unprofitable for those who prefer storing all the necessary data themselves if their expenses are not compensated, so the fee seems quite justifiable.

Vlasov also commented that even after the switch to the Proof of Stake consensus algorithm, the burden to store data will still be on miners. The fee shouldn’t be seen ‘rent’ but rather a fee for the security of stored data. Banks and tech companies have long paid commissions to protect their data, so the concept is hardly new.

Increased Funds and Decreased Data

Vlasov sees in the introduction of fees for Ethereum storage in another light as well — as a possible source of reward or compensation for validators.

Along with commissions for transactions, the fee will also form a pool of additional reward assigned to validators when the emission of Ethereum tokens comes to an end.

Inflation or Rent Fees?

Meanwhile, Ethereum mining has constant costs. Mining needs to remain a profitable endeavor to make renting servers and disk space for the storage of enormous volumes of data worthwhile. Vlasov sees two solutions:

Change Ethereum policy to avoid a finite emission of ETH. In this case rewards are generated ‘from the air’ which will lead to gradual devaluation / inflation.

Alternatively, the reward for creating blocks could come from previous commissions.

Lingering Issues

The reward for the average user possessing 10 ETH who rents a server to store all the necessary data shouldn’t have to pay the rent fee or his reward should be higher than or at least be equal the rent fee. Otherwise any incentive is lost.

“Even if the rewards haven’t been counted yet, it is about some trivial calculations,” says Alex. “Anyway, it is too early to panic.”

Alex claims that rent fees won’t be introduced before Ethereum sharding and the switch to the Proof of Stake consensus algorithm takes place. Both of these events are at least 2 years off, according to his estimations.

Ethereum developers will have to reorient themselves to build smart contracts to identify each information holder and for which information the developer or user is responsible. Given the frame for the introduction of the rent fees, developers should have plenty of time to come up with solutions.

In a recent blog post, Buterin proposed the introduction of so-called “rent fees” that would be levied on users in exchange for the amount of time their data will remain accessible on the blockchain.

In Buterin’s words, “…contracts that developers and users forget and stop caring about should disappear from the state by default.”

The fees, then, are to cope with the increased amount of data being added that all network nodes need to store.

Options for Rent Fees

Buterin came out with two related proposals to insure Ethereum stability and minimize user losses. The first is to identify the upper limit of how large the state of the mainnet should be and then to establish a fee structure that would prevent that limit from being exceeded.

In Buterin’s model described in the comments, any time a user sends a transaction related to a specific contract, or to data stored therein, they would “…automatically pre-fill the contracts that store any data relevant to them with a few years of storage whenever they send a transaction related to them.” The tokens used to pay rent would be burnt.

Buterin also suggested that rent fees should be able to “decrease, but not increase,” as hardware storage capacity grows.

He also proposed relief for users from the burden of previous calculations to find out how long the contract should last by introducing a “pay-to-resurrect” scheme. This would allow contracts to enter a “sleep” state from which they could be awoken by purchasing the necessary data.

It is notable that other developers also consider introducing rent fee schemes. For instance, RSK Labs Co-Founder and Chief Scientist Sergio Demián Lerner says the Bitcoin sidechain “will probably implement Storage Rent.” Daian has also speculated that the Bitcoin network itself may someday need to take a serious look at a similar solution.