Subsidised ledgers

The nature of Bitcoin is one that is designed to incentivise use — the same thing some call spam. Bitcoin is a commodity ledger. Miners are paid in a competitive consensus to add entries to the ledger. Right now, some miners are gaming the system. They mine empty blocks when there are fee-paying transactions. This is what should be seen as a “dishonest miner”.

The reason for seeing these parasitical miners as dishonest is easy; they are being paid to mine entries into the Bitcoin ledger, and they have a reward that acts as the subsidy to ensure that this occurs. In effect, the miner is paid not a “reward” in the form of a lottery, but an income for the completion of a task. The miners accept a contract to add data to the ledger, and for this they are rewarded with a fee from the transaction. This fee is subsidised early on so that the system can grow and scale. So, we can easily see that a miner who mines an empty block when there are transactions waiting to be processed is cheating and taking unearned money.

Proof-of-work is a Red Queen game. Bitcoin as a system starts with the mining of blocks that may not have economic value, and over time and as these are used in commerce, the value of the system as a whole increases. To start, the system rewards low-value transactions through a block-reward subsidy.

In the past, we saw miners earning small amounts based on the low values of the coin. The ability to write to the ledger was not worth a good deal, and as a consequence, the creation of entries should have been increased using the rewards.

We are now at the point where miners are subsidised around 662,500 coins a year. In under two years, this subsidy will drop to 331,250 coins. So, there are around 1,800 coins a day being paid so miners will allow the ledger to be used.

When we see a miner or pool accept empty block after empty block, they are taking money from the system without helping the long-term survival of the system. This is why they are a parasite.

PayPal handles around 16.75 million transactions per day for an average of just under 200 tps (transactions per second). The Bitcoin SV node software has already demonstrated that it can handle this level of transactions. In the coming months, we will scale this further and move from the current levels towards the ability to handle twice to several magnitudes of this capacity.

Miners should be willing to take a fee in the order of $0.001 USD per TX (transaction) for at least the first 25,000 standard transactions with more for non-standard transactions and complex tokens and with 25,000 at a higher rate of $0.002 USD for the following transactions. After this, miners should compete on what they can compete on without the subsidy. After this, $0.005 USD for a standard transaction. The miners would take the higher value first when blocks are congested.

This is a rate estimated in USD for simplicity:

  • 1,000 free transactions a block (and all UTXO consolidating transactions),
  • $0.004 per KB for the first 25,000 simple transactions,
  • $0.008 per KB for the next 25,000 simple transactions, and
  • after this, $0.005 USD for a standard transaction.

Miners would set fees for more complex scripts based on what they see to be profitable. For the existing system, we would thus expect the low-fee transactions to take up 12.75 MB on average each block — the peak being around 57.5-MB blocks. The remainder of the data would be at a higher rate which is not subsidised by the “block reward.”

Over time, and as the system grows in use and value, we would expect this to become even cheaper for users. As the system scales and the cap is removed, we can only start to see that the sky is the limit for transactions.

Notes:

  • A ‘basic’ Bitcoin transaction (this is one with a single input and two outputs — the destination and a change address) is typically in the order of ~250 bytes of data.
  • “Non-standard” transactions’ average byte sizes are generally between 5% and 80% bigger than those of ‘basic’ transactions, although these can be much larger.

Thanks to tonesnotes

Craig Wright (Bitcoin SV is Bitcoin.)

Written by

My opinions are my own. Eternal student & researcher; plugging Bitcoin from as long as it was lawyer, banker, economist, coder, investor, mathematician, & stats

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