What are Empty Block Space bonuses, and what are the basics of crypto economics? =)
How did this all get started? 3 Days ago I began getting serious with my campaign to get the Empty Block bonuses reduced with earnest by August 1st. I got lucky and caught the eye of the community on with the following post:
"If you are curious, it's the miners.
Metropolis will set the % of bonuses to miners on Aug 1st. That percentage is significantly higher the lower the Market Cap. ETH intended to pay $100 Mil to miners but got tricked into paying $4 Billion annualized, 14.75% Market Cap, or $1 Billion over the last 3 months.
Now, with a market cap of say $15 Billion at the time of Metropolis, miners will ask for $600 Mil or 3% Market Cap in empty block space bonuses. Miners liquidate daily, as they get new ETH, crypto constantly. Currently they are liquidating 35,000 ETH a day, after Metro (Aug 1) it will be more like 8,000 ETH daily.
Keep in mind, that's an uncapped dollar figure.
What I'm STRONGLY in favor of is a mixed system, similar to Dash, where empty block space bonuses are split between Master Nodes and Hash Miners. In a situation like that, you'd give bonuses to miners who also have significant investments in ETH, like 10x the bonuses of Hash Miners.
This can put small chains at risk to 51% attacks, but with ETH's value such a large percentage of block chain cap, that risk is virtually nonexistent. 6 months ago, this wouldn't even really be an option.
That's pretty much my biggest risk factor with Metropolis. If all empty block space rewards go to Hash Miners, then essentially we will just continue to fund these market terrorists who have insane incentives to 'boom bust' cycle cryptos around decision making events.
If we can't tackle the miner problem with Metropolis, ETH may have some major issues if the next forced renegotiation isn't until a year later. Miners could make billions, and billions, by spending a few million in shorting the market, now.
That's why you want Master Nodes, to balance the power between Hash Miners, who seek to deflate prices around renegotiation, and Master Nodes, who seek to inflate prices because of their direct economic investments."
That was step one, announce my intentions and convey my sentiment. A team member of the Ethereum foundation chimed in over the discussion boards and suggested I make a EIP. My god, that was exciting :) Most of the community was bewilder by what I was saying, but I think he just wanted me to organize the thoughts and put them down in writing.
So following that, I made the video above to hopefully better explain the situation to the community, and their expected outcome based on the result of the event. The video was well received but was relatively unpopular.
Then The Ethereum Core Developer Meeting thread got posted, and I said:
"Please discuss adjusting Empty Block Space Rewards to 8% or less vs 14.75%. Bitcoin pays out 4%, set in 2009. ETH pays 14.75%. Its WAY too much!!! Billions Too Many!!!
I'm overall super happy with the ETH team. Sometimes technical and economic achievements collide. But it's absolutely insane to keep up with bad economics waiting on some technical miracle.
Adjust the economics of ETH toward lower deflation, and work on the technical discoveries in peace. By not making adjustments, ETH holders are paying billions more than Bitcoin which is somehow seen as an appropriate punishment for technological delays.
8% Or Less!"
To which I got some more trolling, but then VITALIK HIMSELF stepped in and said it would be REDUCED SIGNIFICANTLY!
FLIPPING OUT PEOPLE --- Flipping the fuck out.
So now I repost the video with the above title AND BOOM people are blowing up. Then the meeting starts up, which you can listen to here:
Ethereum Core Devs Meeting #20 - 7/14/17
Oh my goodness - AND VITALIK IS PUSHING IT THROUGH !!!! - They say WAIT Vitalik says WHY NOT TODAY! =)
Then I saw the EIP get posted (which I linked to above), and spread the crypto word to the community. Good things are coming to the Ethereum my friend. Great things are coming soon! :)
The following are some AWESOME calculations:
I can NOT stress this enough. 3 ETH is 14.75% -> 8.85%. THIS IS GREAT, absolutely fucking great, great great great!
- Note : Corrections for over supply calculations, actually 11.27% to 6.76% or a market cap reduction of 4.5% in new issuance, or about $2.5 Million less daily.
That is an at market sell of 11,500 ETH or $2.5 Million (at $220) canceled beginning August 1st - EVERY SINGLE DAY - FOREVER AND EVER AND EVER.
WHO THE FUCK DOESN'T SUPPORT THIS!
I'm flipping my shit.
OK, here is the big kicker my Eth friends. Understanding the Block Chain Market Place. The following is the approximation of the amount of US dollars devoted to block chain security of the major crypto currencies.
Bitcoin $1.6 Billion (at $2,400) or $4.3 Million daily (4%)
LiteCoin $229 Million (at $44) or $627k daily (10%)
Dash $96 Million (at $180) or $265k daily (7%) - With equal % devoted to staked Mining.
Ethereum $2.3 Billion (at $220) or $6.4 Million daily (11.3%) (corrected for over supply calculations, 93 Mil units)
Of Bitcoin and LTC, at least 50% (wild guess) is ASIC mining or $2.5 Million daily.
Therefore we can deduce the total pool of computers world wide devoted to mining crypto which are not ASIC is approximately:
$9 Million daily from the major chains, and let's say another $9 Million daily from all others combined, or a global market cap of computers at use in mining crypto at $18 Million Daily, non ASIC.
In other words, Ethereum is likely purchasing 35% of all computers available to mine crypto world wide, at it's current rates. The immediate plan is to take this down to approximately $3.8 Million daily, or 21% of global crypto computing power (6.76% inflation).
Long story short, I suspect long term Ethereum needs less than 1.5 Block per second (vs 3 or 5), or 3.3% of the Market Cap devoted to the purchase of global computer security or $1.9 Million Daily or 10% of the global computer security Market, but am incredible ecstatic about the reduction from 5 to 3 as well =)
According to https://coinmarketcap.com/currencies/ethereum/ Ethereum has 24 Volume of $700 Million.
Of that, $8 Million is an 'at market' sell of Ethereum, daily, for block chain security.
It takes about 1% of the daily market volume by any single actor to move the price of a currency, I speculate about 10%. I think that is a fairly appropriate velocity adjustment.
This will get cut in half, thus likely having an immediate uptick of 5%, IMO. However, there will be $4 Million less ETH sold daily. In an isolated context there is no way to interpret that as something that could do anything but increase the price immediately, and long term.
The driver is that the price of ETH has risen 10x over the last 6 months (or more). Block chain security is not relative to the cost of computers, but the market cap of the currency. Therefore, as the market cap increases, so should the % paid toward security decrease, as the cost of computers has not changed in proportion.
ETH could possibly maintain security at 2% Market Cap, though it would be disruptive to the market overall. It would significantly reduce the advantages that Dash, Tezos, and ANS (Neo) are using to challenge ETH investments.
Ethereum Market Cap is $20 Bil. If a new actor comes into the market and wants to purchase $240 Million Ethereum, with a daily market volume of $700 Million, with a natural growth of 1% daily, then it can support $7 Million new purchases a day without adjusting the projected market cap (spot price vs total volume).
I suspect that issuing an 'at market' purchase of $240 Million would change the spot price more than the actual US Dollar input. Accordingly, it should change from say $200 to $202.40, however I suspect the spot price would change to $680, or akin to such (remember a $13 Mil sale on gdax brought the spot price below $1 and rested down 10%).
Effectively the Ethereum foundation canceled a $240 Million dollar sale order of Ethereum that was to occur over the next couple months, relatively unexpectedly, beginning August 1st, a few hours ago.
Or one less $4 Million dollar sell order issued daily. Or one less $4 Million dollar sell order issued daily forever if you invested prior to full comprehension of block reward, etc.
I suspect this will have an effect on the spot price between 20% to 5%, considering how it's spread out over a couple months and perhaps was already anticipated by major investors.
But who knows :P -- GOOD LUCK FRIENDS AND PARTICIPATE IN THE DISCUSSION, KNOWLEDGE, AND SUPPORT! May your gas always be full, and your nodes perpetually synced. Take care.