Return-Path: Received: from smtp1.linuxfoundation.org (smtp1.linux-foundation.org [172.17.192.35]) by mail.linuxfoundation.org (Postfix) with ESMTPS id AD719DFC for ; Tue, 26 Jan 2016 17:43:31 +0000 (UTC) X-Greylist: whitelisted by SQLgrey-1.7.6 Received: from mail-ob0-f180.google.com (mail-ob0-f180.google.com [209.85.214.180]) by smtp1.linuxfoundation.org (Postfix) with ESMTPS id 3A2D6129 for ; Tue, 26 Jan 2016 17:43:31 +0000 (UTC) Received: by mail-ob0-f180.google.com with SMTP id zv1so46824023obb.2 for ; Tue, 26 Jan 2016 09:43:31 -0800 (PST) DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=gmail.com; s=20120113; h=mime-version:from:date:message-id:subject:to:content-type; bh=qgaMLFFmvMhGOyRcDv9mIaDE7anZohijW6Y8E/XOMJA=; b=Dcwy1l7YJy3Zy7P99fOGjhG38uEzc7voe58EGGtbDxooNsrAmv2kBeyqtnVK/eQjUo I9qFxa0AJ5us4FhTsmW8mP1aZlmO6lZjPO3OMo//zu92n0E4jRVCzFAaAZEn7RsFHn3w NoKu1tjl5wPOAHR4aG9yIEnoZmhkVVZ/dUjW8CNa307TgU1nh45CO75BWL+fYPmANpW7 sGvWVY4/U5gQHYrq24mfyeO6TUNErzjauxqeoZhakbbhlmsW/6h1g72qOzFBoYuX74q8 ae8rxgx9ZmOvA5QUJwEFMfePdGF3Z+bbb9UCtR2xrvToJMuQXZfAlFxRaoyeqjLFQ2Io etqw== X-Google-DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=1e100.net; s=20130820; h=x-gm-message-state:mime-version:from:date:message-id:subject:to :content-type; bh=qgaMLFFmvMhGOyRcDv9mIaDE7anZohijW6Y8E/XOMJA=; b=N7ujjqaEmo9QSsJFFuBOu9bETunV3xpGZ+GE3f0qdBRKrc2ktBX4cG3wjt7+eVloX3 P0f016WzYwbsAwHeR7LLFhnleCp4JEYhzjETlrgrDxWuB2Nc+Ggaq77LRiBxfQhpAJ3J fOd8XAHOKFD6UskKnyRhNkZXW2zimdXVaALtqk/UmPIumeQPvMZUN/qKI4X5MfmKuPh0 24Am9jLoe5sh3ZMm2lUwxOGLLfsJwxj7f4EkqpnxCGmyml4bWaUDlerljCUcae685vtX /K0qi+nKbjpOToznZWpq8LwfGgNvRXoKEkuIFNoORok7n2xLj2VT0XQaqJ/yIbwd+G2p 6zpQ== X-Gm-Message-State: AG10YORqCIsiHdJy1hIDDAkPpSque8Xj73t4c5PwHGQeDYZpIISlmpH6zZ6WGGfyMl+FmtD7TUwhambRvrPcpQ== X-Received: by 10.182.29.70 with SMTP id i6mr18858306obh.73.1453830210580; Tue, 26 Jan 2016 09:43:30 -0800 (PST) MIME-Version: 1.0 Received: by 10.202.168.144 with HTTP; Tue, 26 Jan 2016 09:42:25 -0800 (PST) From: Luzius Meisser Date: Tue, 26 Jan 2016 18:42:25 +0100 Message-ID: To: bitcoin-dev@lists.linuxfoundation.org Content-Type: text/plain; charset=UTF-8 X-Spam-Status: No, score=-2.7 required=5.0 tests=BAYES_00,DKIM_SIGNED, DKIM_VALID, DKIM_VALID_AU, FREEMAIL_FROM, RCVD_IN_DNSWL_LOW autolearn=ham version=3.3.1 X-Spam-Checker-Version: SpamAssassin 3.3.1 (2010-03-16) on smtp1.linux-foundation.org X-Mailman-Approved-At: Wed, 27 Jan 2016 00:50:42 +0000 Subject: [bitcoin-dev] Fee smoothing X-BeenThere: bitcoin-dev@lists.linuxfoundation.org X-Mailman-Version: 2.1.12 Precedence: list List-Id: Bitcoin Development Discussion List-Unsubscribe: , List-Archive: List-Post: List-Help: List-Subscribe: , X-List-Received-Date: Tue, 26 Jan 2016 17:43:31 -0000 This post serves to convince you of the economic benefits of smoothing the payout of fees across blocks. It incentivizes decentralization and supports the establishment of a fee market. Idea: currently, the total amount of fees collected in a block is paid out in full to whoever mined that block. I propose to only pay out, say, 10% of the collected fees, and to add the remaining 90% to the collected fees of the next block. Thus, the payout to the miner constitutes a rolling average of collected fees from the current and past blocks. This reduces the marginal benefit of including an additional transaction into a block by an order of magnitude and thus aligns the incentives of individual miners better with those of the whole network. As a side-effect, the disadvantage of mining with a slow connection is reduced. Example: currently, given a transaction with a fee of 1000 Satoshis and global processing cost per transaction of 5000 Satoshis, an individual miner would still include the transaction if it costs him 500 Satoshis to do so, as the remaining burden of 4500 Satoshis is carried by others (a classic externality). However, with fee smoothing, the immediate benefit of including that particular transaction is reduced to 100 Satoshis, aligning the economic incentives of the miner better with the whole network and leading the miner to skip it. Generally, the fraction that is paid out immediately (here 10%) can be used to adjust the incentive, but not arbitrarily. Benefits: 1. The disadvantage of mining with a slow connection is reduced by an order of magnitude. If it takes 30 seconds to download the latest block, a miner loses 5% of the potential income from fees as he does not know yet which transactions to include in the next block. With fee smoothing, that loss is reduced to 0.5% as he would still earn 90% of the average fees per block by mining an empty one based on the latest header. 2. This is a step towards a free fee market. In an ideal market, prices form where supply and demand meet, with the fees asymptotically approaching the marginal costs of a transaction. Currently, supply is capped and only demand can adjust. Should we ever consider to let miners decide about supply, it is essential that their marginal benefit of including an additional transaction is aligned with the global marginal cost incurred by that additional transaction. Fee smoothing is a step in this direction. 3. The incentive to form mining pools is reduced. Currently, solo-mining yields a very volatile income stream due to the random nature of mining, leading to the formation of pools. This volatility will increase to even higher levels once the amount of Bitcoins earned per block is dominated by (volatile) collected fees and not by (constant) freshly minted coins, thus increasing the economic pressure to join a large pool. Fee smoothing reduces that volatility and pressure. Problems: touching anything related to fee distribution is a political minefield. This proposal probably requires a hard fork. Its technical feasibility was only superficially verified. This is my first post to this list and I am looking forward to your comments. In case this proposal is received well, I plan to specify/implement the idea more formally in order to kick off the usual process for improvements. -- Luzius Meisser President of Bitcoin Association Switzerland MSc in Computer Science and MA in Economics