An Onchain Implementation Of Mining Feerate Futures

An Onchain Implementation Of Mining Feerate Futures

Original Postby ZmnSCPxj

Posted on: February 22, 2024 10:47 UTC

The recent discussions around blockchain technology have brought to light an innovative idea that could potentially revolutionize the way transaction fees are handled within the network.

This concept revolves around creating a proof-of-low-fees system that relies on miners including artificially-enlarged transactions in their blocks. The purpose behind this mechanism is to enable miners to recover their bonded funds, thus incentivizing them to maintain lower transaction fees.

The core of this innovation lies in its ability to provide solutions not just for reducing transaction fees but also for offering a form of financial stability to miners. By utilizing such a system, miners can effectively insure themselves against the volatility of transaction fees. In periods of low fees, they stand to gain more, whereas during high fee intervals, their earnings would diminish. However, the overall effect would be a more predictable and steady cash flow. This aspect is particularly beneficial as it addresses some of the inherent uncertainties miners face, such as fluctuating grid costs.

On another note, the proposed system extends beyond the technical realm, touching upon the need for a framework that incorporates real-world enforcement mechanisms. This necessity arises when considering scenarios where funds are loaned out to businesses with the expectation of repayment from future earnings. Such arrangements underscore the importance of legal systems and the application of real-world force to ensure compliance and safeguard interests.

Furthermore, the competitive nature of mining is highlighted as a crucial factor in the effectiveness of this system. It is posited that if a miner manages to align its operations closely with its competitors, a market equilibrium of marginal cost equaling marginal revenue (MC=MR) could be achieved. While this might not lead to increased profits from the fee-smoothing mechanism alone, the resultant steady cash flow would still offer significant advantages. These include reduced financial uncertainty and better management of operational costs, thereby contributing positively to the overall stability and efficiency of the mining process.

In essence, this approach to managing blockchain transaction fees and miner profitability could pave the way for more sustainable and robust network operations. Through strategic innovations and the integration of legal frameworks, the blockchain ecosystem can evolve to address both technical challenges and the complexities of interfacing with traditional financial systems.