Discussion of Miner Revenue and Fees at Scale

[_minisatoshi]

I wrote this in another thread, but felt it might be good to have a decent reference/resource for any arguments against tiny fees not being enough to secure the network in the future. I think at a high level I’ve covered a lot, but would love to get thoughts to see what I may have missed/didn’t consider.

Just for clarity’s sake, granted this is all hypotheticals, $100,000,000 per coin isn’t really in the cards (without some major inflation, which maybe is in the cards in the next 10-20 years!), but is still a bit irrelevant.

There is approximately $49T in the M1 money supply and $83T for M2. Rounding to $50T and $100T nets a price of BCH at $2.38M and $4.76M, respectively. So the fee would be $7,000 or $15,000, roughly (respectively), rather than $255,000.

Though, inflation doesn’t matter, because the actual value of the currency wouldn’t change.

So for today’s value, an adjusted calc would be…roughly $12,000 per block in today’s dollars. And that value should scale up proportionally with inflation, whereas value would remain constant.

1sat/byte, assuming the $4.76M price per BCH, would be a fee of $17. Which in today’s dollars would still be far too expensive. So 1millisat/byte does make sense to keep the fee at just around 1 penny.

So at the end, the daily fee to miners would only be $1.7M (in today’s dollars) of value. But the beauty is that that’s only at 1%, and assuming no improvements are made to transaction sizes! So there should never really be a fee problem at scale.

EDIT:
For fun calc with today’s dollars/value in a full replacement scenario…
60,000tps * 60seconds * 10min * 360bytes/tx / 100,000,000,000millisats/bch * 4,760,000price/bch * 144blocks/day = $88.8M in daily miner fees!

That should be plenty of fee budget.

EDIT: Amount of daily storage needed at the above scale:
60,000tps * 60sec * 60min * 24hr * 360 bytes/tx = 1,866,240,000,000 bytes = 1.866TBytes Per day (or 1.738Tibibytes per day).
Maybe little by little I’ll break it down as I get bored, but some more assumptions!
Today, Seagate has a 30TB HDD (plans to retail for $450 iirc). So $450 will cover 16 days of transactions. Let’s say there are 100 mining pools. That’s $450 / 16 days * 100 pools = $2,800 per day for all mining pools! Doesn’t even make a dent in the daily mining fees. Except, that dent will become smaller over time as storage gets cheaper and cheaper in relative value.
The natural counter to this would be (fast storage is needed!). Ok, well 100TB SSDs exist today (in 3.5in form factor), but they cost $40,000. Let’s do that math:
$40,000 / 53 days * 100 pools = $75,000 – 0.08% of the daily mining revenue. This is basically non-existent.
But at the same time, if you can’t be bothered to spend THAT much, Run HDDs in RAID 10. Sure, now paying for extra drives, but the relative cost (to daily revenue) is still basically non-existent. Now you have fast, redundant storage, at a fraction of the cost.

Heck, let’s do those 100TB drives in a RAID 10 configuration. Double that cost for the SSDs! 0.16% of daily mining fees. Now this is where it becomes noticeable, but it is still so tiny. And this is before accounting for the decrease in relative cost for this storage, which would likely send this cost down 10x by the time 60,000tps would ever occur.

Now let’s think about internet bandwidth. 1.866TB / day. 1.866TB / 24hrs / 60min / 60sec = ~24MBps = ~ 200Mbps. That’s pretty close to a normal home internet connection today. Associated costs are completely insignificant.

Then what about for businesses/otherwise running nodes? I don’t really think it’s necessary to account for their cost since UTXO commitments will likely exist well before this sort of scale.

What about other high performance full archival nodes? Such services would be offered and likely charge for those services. They will charge what the market determines it is worth so this is not really a consideration.

What’s the TLDR?
60,000tps with a 0.001sat fee at $4.76M relative value per coin equates to $88.8 million of relative miner compensation a day.
This requires a daily incremental cost (over 0) of 0.16% of those fees assuming a high performance configuration.
Necessary uninterrupted internet connection would be 200Mbps, which is common today for homes and so this is completely insignificant.

[_minisatoshi]

Some other thoughts… the float of BCH is lower than BTC. And frankly, there are probably a couple million coins that are unrecoverable at this point. So, the average relative price per coin would likely be higher. Doesn’t change any of these numbers significantly, but just a thought.

[_minisatoshi]

Another thought here – at scale subsatoshis become mandatory otherwise fees would be ridiculous.
Also, as price increases, 1sat per byte fees might need to decrease.

[tom]

@_minisatoshi

Another thought here – at scale subsatoshis become mandatory otherwise fees would be ridiculous.
Also, as price increases, 1sat per byte fees might need to decrease.

I have tried and failed reading the opening post some times, so forgive me if I didn’t get the gist of this thread. But I do understand the tx-fee part here.

1. we have the technical ability to go to 1 sat per transaction. Which could be advertised as sub-sats if we keep talking about sat/byte.

2. talking here as a result of my milli-satoshi chip has shown to need something that actually breaks the transaction parsing in order to make old software fail (preferred over misunderstanding the amount). Nobody has come up with a good idea yet.

3. The fees (and other) rewards to be paid to the miner are still centralized and would really benefit from some free-market solution, an algo or whatever. I wrote down some ideas in the past but unless we’re getting to actually high fees I doubt this will be a focus of anyone.
   So, in short, we’re still at the “bchn peeps will change the default when the price rises”.

[_minisatoshi]

I think there may be a misunderstanding. The point of this writeup is to describe how 1/1000 sat/byte transactions at scale still produce significant revenue for miners. This is meant to be a reference article that people can link to BTC blockheads that don’t understand simple math. – With this out of the way, see below responses:

1. yes but this main post discusses 1/1000 satoshis per byte. 1/300 satoshis would not be cheap enough at global scale

2. Don’t want to derail this topic – this is meant to be documented evidence of feasibility of minimal fees at scale – but have we looked at how XEC achieved smaller decimals? --better discussed on your CHIP thread though.

3. I recall that discussion. I don’t know how necessary for the reasons I pointed out. There are difficulties with it. However, I am simply discussing minimum fee. Of course miners can still choose to have higher minimums (though they would lose out on tx volume by doing so), and again, not at all the point of this discussion.

Keep in mind, this (subsatoshis/lower minimum fees) is not necessary at all yet. Just in the future, if we are successful, will be. And the point of this writeup isn’t even about needing subsatoshis (though implied), it is just a writeup that people can use to refute the blockheads that say miners can’t survive off of minimal fees. Here I demonstrate they absolutely can. – I do plan to analyze public miners – extrapolate to all miners the similar cost structures, and calculate the comparison of revenue of my 1/1000 sat/byte math vs what they receive today – but not necessary at this point.

[tom]

@_minisatoshi

The point of this writeup is to describe how 1/1000 sat/byte transactions at scale still produce significant revenue for miners.

Ah, that makes the rambling of OP a bit more coherent.

The idea that we’re going to get a flat fee per byte for all types of transactions is historically naturally not really expected. Never in the world has that actually happened. (assuming the government didn’t set the price!)

So I expect we’ll see a lot of free transactions (zero fee), and transactions that are not moving any BCH (but a house ownership for instance) are required to pay more fees.

So not really “minimum fee”. More a “for this I’ll get out of bed” income concept. Which frankly is how the world works.

I think a different angle you’re not taking here is that as the (fee only) reward per block goes up as a result of the coins valuation, that this makes the mining profession less competitive.
This is relevant as that means a lot more people might just want to start mining their left-over energy from for instance sun or water power.

[_minisatoshi]

@tom

Ah, that makes the rambling of OP a bit more coherent.

@tom

The idea that we’re going to get a flat fee per byte for all types of transactions is historically naturally not really expected. Never in the world has that actually happened. (assuming the government didn’t set the price!)

Not really the point – just a theoretical as that’s the main mechanism / nearly impossible to assume what txs might have what fees in the future – a flat average is the best and simplest way to do the math

@tom

So I expect we’ll see a lot of free transactions (zero fee), and transactions that are not moving any BCH (but a house ownership for instance) are required to pay more fees.

Maybe – but maybe not. Idk why miners would offer 0 fee at all. But who knows. Either way, some higher some lower doesn’t really change the original point.

@tom

I think a different angle you’re not taking here is that as the (fee only) reward per block goes up as a result of the coins valuation, that this makes the mining profession less competitive.
This is relevant as that means a lot more people might just want to start mining their left-over energy from for instance sun or water power.

The writeup is in terms of relative value and in a world where BCH replaces the global M1/M2 supply – no other currencies are relevant (so max value) – which makes the price in fiat per coin irrelevant. That is critical to running the thought experiment, otherwise variables get out of hand and impossible to work with, and others are just completely irrelevant (i.e. inflation means larger “market cap” but same value per coin, so worthless to deal with).

[_minisatoshi]

All in all – this writeup is taking relative value using today’s dollars and running the math of what miner revenues would be in a world where BCH has replaced the M1/M2 global money supply. What value is generated from the miner’s work at 1 penny per transaction fees on chain, even after all associated costs with bandwidth, storage, etc – tackling the main funding arguments smallblockers pull out of their ***** – and demonstrates that a high volume, low fee, big block economy is possible and desirable.

[_minisatoshi]

@tom

This is relevant as that means a lot more people might just want to start mining their left-over energy from for instance sun or water power.

This idea I would love to explore more, though! Encouraging this would be very neat. Idk how feasible, but possible! I still think that farms will further specialize and there will be less (as a % of the total hashrate) recreational mining.

@tom

that this makes the mining profession less competitive.

I’m not entirely sure what the lead-in to this means – but the mining competitiveness is an interesting idea. I need to think on it more, but in a world where BCH is the endgame and blocks are nice and full of low fee txs, would miners be more or less competitive? Cost benefit of new hardware would solely depend on energy cost and efficiency. By that point, I wonder if hardware could become any more efficient. But energy prices… now this is where it gets interesting. With the pressure for lower and lower prices to gain leverage over other miners, this creates competition in the energy space as well to lower prices which could have a significant net benefit to people globally as we push for more efficient and cheaper power. Anyways, that could be a whole other topic.

P.S. Back to the above point about recreational mining with extra power – this would be the other idea that yeah people might just do it! What if future HVAC systems, rather than heat pumps or otherwise, used ASICs that turn on when someone wants heat and off when they don’t? Is efficiency lost in the system? Wouldn’t imagine so. The benefit is that no matter how cold outside it is, your system never loses efficiency! Heat pumps, and especially the older tech, lose efficiency in too cold of weather and some can’t even function (hence coils put in many systems as a backup or initial to raise the intake temp), so ASICs maybe could be a way to make some money while consuming electricity. The possibilities here are interesting!!

[tom]

@_minisatoshi

this writeup is taking relative value using today’s dollars and running the math of what miner revenues would be in a world where BCH has replaced the M1/M2 global money supply.

I mean, that’s great to show people that big numbers of ‘customers’ means a healthy mining industry. But at the same time it makes comparisons that are mostly apples vs oranges.

So I’m taking the opportunity to look a bit ahead. The fact is that a more healthy mining ‘market’ is good for the coin. Fair and open competition is long term always good for the end user, afterall. Controlled markets are always long term bad for customers. Econ 101 (well, not the one they teach in schools, alas).

Most people have been pushing for a good governance structure, but practically nobody seems to care much about a healthy market for mining. A healthy market means open competition (we already mostly have that). It also means that competing miners can set their own prices. They can define ‘products’ and much like the most extreme example of airline tickets, they can give different prices for different service-levels.
Similarly, just like a spotify or similar online massive services have a free tier, so can miners do so. Because it makes economic sense to not price out a large chunk of usage while making sure that those that can are the ones that pay.

It makes total economic sense to charge someone selling a token which represents a very expensive piece of real-estate more than someone that just pays for their groceries. Again, basic economy.

Now, I know people will not WANT the miners to get that power, or people will say they don’t understand how this can be good. But, honestly, controlled markets have never once given long term benefits to end users. While open uncontrolled ones always have created massive benefits. (see Milei speech in Davos).

Luckily, there is no consensus rules that stop such markets from being created. So it is inevitable and I’ve been writing about how to be part of the movement to do so for 6 years. Most seem to take a wait and see, which sounds like a sure way to force everyone going through a lot of problems before we get something usable…

@_minisatoshi

@tom

that this makes the mining profession less competitive.

I’m not entirely sure what the lead-in to this means – but the mining competitiveness is an interesting idea.

In a world where the amount of income for the mining industry is based not on a million users, but instead on the entire economic system of a large number of countries, things change.

The income will for quite some time be higher than cost by a wide margin. Which is the competitiveness part. Miners today are highly competitive and the amount of time one mining hardware can last before it gets not profitable is insane. In a world of larger income, this replacement will take a lot longer.
On the other end, for the year(s) that there is more income per hash, a lot of people may invest in mining solutions based on excess energy. Free energy makes those smaller ones hella competative! But that sub-market (designs, ideas, hardware) need the chance to start, and the less-horizontal part of the s-curve may provide that.

[_minisatoshi]

@tom

I mean, that’s great to show people that big numbers of ‘customers’ means a healthy mining industry. But at the same time it makes comparisons that are mostly apples vs oranges.

Not sure I’m getting where the apples and oranges is referencing. What’s out of place/so overbroad? This is just an easy math to show that big blocks don’t matter in terms of cost and that miners in low fee environments have a lot of cash flow to work with at scale.

@tom

So I’m taking the opportunity to look a bit ahead. The fact is that a more healthy mining ‘market’ is good for the coin. Fair and open competition is long term always good for the end user, afterall. Controlled markets are always long term bad for customers. Econ 101 (well, not the one they teach in schools, alas).

100% agreed. Did I suggest otherwise somewhere? (actual question, not facetious)

@tom

Now, I know people will not WANT the miners to get that power, or people will say they don’t understand how this can be good. But, honestly, controlled markets have never once given long term benefits to end users. While open uncontrolled ones always have created massive benefits. (see Milei speech in Davos).

Luckily, there is no consensus rules that stop such markets from being created. So it is inevitable and I’ve been writing about how to be part of the movement to do so for 6 years. Most seem to take a wait and see, which sounds like a sure way to force everyone going through a lot of problems before we get something usable…

Mostly agreed. Don’t see any reason to place restrictions on this – let the free market operate. Each miner can set their own fees they’ll accept for whatever transactions, some may allow free space, some may charge higher for certain token sales, some might not. In the end people don’t want to miss out on profit and some miner will most likely be willing to do at a lower cost. The reason I say “mostly,” and I haven’t given this enough thought, is that cohorts can form amongst the main pools which price set certain stuff, and then even if a small miner wants to be more economical, it could be highly unlikely for them to get a block (with/without selfish mining) – but this is where a scheme like TailStorm becomes a lot more interesting!

@tom

On the other end, for the year(s) that there is more income per hash, a lot of people may invest in mining solutions based on excess energy. Free energy makes those smaller ones hella competative! But that sub-market (designs, ideas, hardware) need the chance to start, and the less-horizontal part of the s-curve may provide that.

Oh I agree – but beyond the excess energy – just more efficient use of energy. Like my example above, where coils are used, that’s just a big resistor to translate electricity to heat – ASICs can do that very same thing! A hydro variant of an ASIC (or two or three or more) could replace the heating systems of gas / electric water heaters, both tanked and tankless. The possibilities here are endless. This is something that, if Bitcoin does begin to succeed, I want to experiment further with.

[tom]

@_minisatoshi

Not sure I’m getting where the apples and oranges is referencing.

To be clear, that wasn’t a critisism. My point simply is that I agree with your opening point, it is acknowledged and the income per mined block is not just sufficient, it is a lot more than that.
I’m not going to work further on that napkin math, though. As m1/m2 are the old financial system and inflated and probably give a distorted view of reality, while that makes it useful for your point. It is apples vs oranges when one tries to use them in bch. Again, not an argument, just taking the opportunity to think about future mining industry directions.

@_minisatoshi

100% agreed. Did I suggest otherwise somewhere?

Apologies I didn’t say this clearly, I’m not really disagreeing with anything you say. Just adding my own thoughts.

@_minisatoshi

let the free market operate. Each miner can set their own fees they’ll accept for whatever transactions, some may allow free space, some may charge higher for certain token sales, some might not. In the end people don’t want to miss out on profit and some miner will most likely be willing to do at a lower cost.

I’m very curious what is going to happen over time. People might submit a transaction that needs sending only “this week” for a much lower fee and see if one miner ends up picking it up.

At massive scale the setups we have today with the one centralized full node is likely going to be a really sub-optimal one and miners will end up with 2 mempools. One with as many transactions as possible (in order to reconstruct a block other miners created) and another for what they themselves will include in the next block should they win the hash.
Then it becomes easy to be much smarter about what kind of transactions to include in a block and CREATE service-level tiers. For instance, a low fee or low priority transaction can be kept in the mempool for 10 hours before being included.

All permissionless, naturally. It just takes coding and with some coordination with devs building that we might have a good product when we need it. For instance when the blocks are going to be “full”, we’ll be able to provide a good througput for normal small payments that people make in stores to buy their groceries.
Without such efforts our zero-conf promise goes out the window and we’ll lose.

@_minisatoshi

This {asic to heat your stuff} is something that, if Bitcoin does begin to succeed, I want to experiment further with.

Yes, some people are already doing that on BTC! It will be super cool to see.

[_minisatoshi]

@tom

To be clear, that wasn’t a critisism. My point simply is that I agree with your opening point, it is acknowledged and the income per mined block is not just sufficient, it is a lot more than that.
I’m not going to work further on that napkin math, though. As m1/m2 are the old financial system and inflated and probably give a distorted view of reality, while that makes it useful for your point. It is apples vs oranges when one tries to use them in bch. Again, not an argument, just taking the opportunity to think about future mining industry directions.

Not interpreting it as one! I understand what you’re saying, but I don’t agree that it is not helpful when talking in terms of BCH – I’m talking relative value, let me see if I can explain the logic better here:
I use M1/M2 to get to a number that itself doesn’t have much meaning but enables us to do math in terms that are understandable (as you did say – just rehashing). If the $100T number ends up being $20T, the relative value of miner earnings are the same. Same amount of BCH being earned/paid as a tx fee. So each sat (or subsat, for that matter) is still the same fraction of the global money supply (whatever that number actually is). When I mention a penny fee – this is talking about the relative value of a penny compared to all goods. A penny’s worth in today’s value. Not what a penny might be worth more as or less as.

Very sorry if I’m still missing what you’re saying, or perhaps something I didn’t clarify well enough in the original post (which granted does need a good amount of clean up – maybe I’ll do that today)

EDIT: Sorry – tone/meaning can sometimes be difficult to understand (and to communicate!) for me over message – please note I’m not at all having any snarky/rude responses/intent!