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110 sats \ 6 replies \ @sean 21 Oct 2022 \ on: I'm Peter Todd, cryptochronomancer/web-π dev, AMA bitcoin
Can you help me understand?
When miners are no longer receiving enough block rewards to cover their costs they will need to depend on transaction fees. But transactions fees are set by the senders. So if the senders aren't setting the transaction fees high enough, miners will just turn off their machines. Is that correct?
Yes. That itself is a big disruption to mining protocols: none of the existing pool schemes take transaction fees into account in how they value a share.
What will need to happen is pools need to tell miners what the reward per share is on a moment to moment basis, based on transaction fees, so they can turn on and off miners. Which of course is a real mess...
Many more issues beyond that too, like how it can make sense to reorge blocks to get more fees if you are a big miner. We do not want that to become common as it'll ruin the profitability of anyone but large, centralized, pools.
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Wouldn't whales wanting to protect their wealth mine at a loss, or form some kind of manipulative coalition sending coin to themselves & raising the fee for everyone else?
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It's a tragedy of the commons. Relying on that kind of altruism is much more risky than just having a small security fee.
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Counter argument I have heard before is: why would miners be more incentivized by a tiny security fee? The fee is "so small it won't significantly increase the supply", but then how would it increase the incentive to mine if it's so small that it doesn't really make a big difference.
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Because even just 0.1%/year of $1 trillion is still $1 billion, or $20k/block. That's a lot more than you could easily raise by donations. And if it's consistent (which tx fees are not), it's probably enough incentive to keep mining moving forwards consistently.
...and that's a key point: sufficent tail emission or demurrage can fix the reorg problem where big miners frequently have incentives to play games reorganizing blocks. Fees alone simply can't do that all the time, as they'll inevitably be inconsistent.
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Appreciate the reply.
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