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The narrative around ordinals is ever-changing, but one of the more persistent ones is about how it enables miners to have a better business. The main idea is that by subsidizing miners, the Bitcoin network is going to get stronger and more robust.
There are several problems with this argument, but let me focus on one particular aspect. The argument that spamcoins will strengthen mining companies is based on more fees. And indeed, that's true. But for it to really benefit mining companies, the revenue needs to be consistent and reliable. And the thing about these short term fee spikes is that they are anything but consistent and reliable.
Sure, you get some blocks where the fees are greater than the block reward, but that's the exception, and not the rule. They generally congregate around the hype of one thing or another. In the case of ordinals and BRC-20, they clearly spiked when Binance listed one of the tokens. It was a fickle altcoin market's coin of the month, and while it did spike fees, the fees came down a short while later.
Surprisingly, the dynamic is similar to what we've seen in energy markets with renewables like wind and solar. Like spamcoin revenue, they are both also unreliable and inconsistent, and they've added considerable variance to the business of energy. Rather than strengthening the grid, they've weakened it considerably, creating terrible mismatches of supply and demand, which inevitably result in blackouts or brownouts.
In the same way, spamcoin fee revenue has made the business of mining that much harder to predict. The revenue is not consistent or reliable, so to depend on that revenue is, from a business standpoint, a considerable risk. Any fee spike that's based on a random scammer's pump and dump is not easy to predict and leaving around extra mining capacity to take advantage of these spikes is not tenable. In other words, from a business standpoint, it makes little sense to modify a business trying to capture this intermittent, unpredictable revenue.
The thing that businesses need is consistent and predictable revenue because that's what allows them to plan and grow. A flash in the pan like spamcoins is not something that's really going to help with that. Consistent fee revenue, something that has a proven track record, is what mining businesses need to really take advantage and invest in capital goods. Indeed, when we say "fee market," that's what we mean, not these random spikes based on dishonest marketing and hype.
In the meantime, fee spikes like this are a nice little bonus, but they are more likely to create malinvestment. If a business makes that bet that spamcoin fee revenue will stay consistent for the next 4 years, they're likely to lose to a competitor that doesn't make this assumption.
We like to believe that a dollar earned is the same no matter where it comes from, but that's just not the case. If it's a dollar earned that you can't predict, it's unhelpful and perhaps even detrimental for planning. Spamcoins are in the long term not good for miners as they are so obviously hype-based. We need to dispense with unsophisticated narratives like this.
Bitcoiners are better than that.
I think we think too much about miners, I see a lot of people coming with arguments against some technical aspects bc miners have to eat and "security budget". F that. Miners have their own market we can't control it, if they go bust other will take his share, if hashrate drops more miners will come online, I think in a few years many miners will have big contracts with national grids, also some nations might also do mining to secure hashrate for them without caring about profit in usd. We need to think what is better for the whole network and usage, if the network is widely adopted miners will be fine, we don't need to artificially subsidize them.
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I'm a pleb through and though but my thoughts seem to be aligned with yours. I can't imagine a world that @petertodd does where we will have to incentivize miners with a seemingly insane notion when it seems apparent that nations, like you said, will mine for themselves profit be damned. I respect peter a ton and I love to read his work but I have yet been able to budge from a hard disagreement when it comes to tail emissions.
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20 sats \ 0 replies \ @dgy 11 Jan
As a miner you will only survive in the long run if you care about bitcoin (low time preference). Reaping some short time fee spikes and hoping you will survive the next halving cycle has somehow something in common with politician that are also selected for four years (high time preference).
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All I can say is that as a home miner in a pool, I like that I am earning more sats due to increased fees. However, I understand that higher fees make on-chain harder to use for plebs.
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and it seems it is the fiat finance funded miner who can not get a loan from a dirty bank based on possibly random fleeting fee spikes.
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...sure, but the fee market was also wildly unpredictable before the advent of ordinals / transcriptions.
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the fee market was also wildly unpredictable before
I think @jimmysong is not arguing about that. He might even agree with you on that.
I found his reasoning to be quite ... reasonable.
Markets don't like uncertainty and fee spikes only make it more unpredictable.
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Would it be better for miners if fees remained at 1-5 sats / vbyte in perpetuity, then?
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50 sats \ 4 replies \ @ek 11 Jan
That sounds like a straw man
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No not at all
I don't understand how one can think the following can both be true
  1. random fee spikes from "legit" transactions (status-quo) is preferable to no spikes at all
  2. increasing the frequency and magnitude of those spikes (ordinals effect) is worse
My straw-man is trying to understand if you think 1) is false
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I don't understand how one can think the following can both be true
I see. I'll try to explain:
I'm trying to say that random fee spikes from "legit" transactions are preferable since they have more social consensus and are using block space more efficiently, so there is less chance that they will generate significantly less fees just by some software update (wallets, CEX batching, soft forks, ...) that makes them even more efficient. "Legit" transactions had an incentive to be as efficient as possible since bitcoin was created.
So basically, I want to argue the following: efficient transactions => reliable block fees
It's much more probable that bitcoin will continue to have the same magnitude of fee spikes from "legit" transactions than from inscriptions. Filling a block with a lot of small, efficient transactions is ... a lot more efficient than filling it with big transactions since you can fill something easier if you have a lot of small stuff to fill in the gaps. Hence, inscriptions aren't as reliable to generate a consistent stream of fees on a long enough time scale.
I think I also read somewhere that inscriptions are pretty inefficient since they use JSON to encode stuff which is wasting block space. So assuming this is true (I didn't verify), this means that inscriptions could generate significantly less fees in the long run simply by optimizing them - assuming that's in their interest. But people don't have infinite money to spend on expensive, wasteful inscriptions. That's part of why I am not too worried about inscriptions. So either they run out of money or they optimize them. Both cases will generate less fees though.
Additionally, it makes more sense to build a business model around something which existed for 15 years than around something which existed for what, 1-2 years?
I really don't know if inscriptions will still be a thing in another 1-2 years. I don't know how much it is driven by hype vs. sustainable demand. But I think there is a sustainable demand for "legit transactions" by L2 layers etc.
Else bitcoin will have failed anyway and I don't think people will continue to run their miners solely for inscriptions. The hash rate is there for a global, permission-less, censorship-resistant monetary network. Not for inscriptions.
Does that help?
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Well look, you basically have two scenarios:
  1. Fee-market driven by regular transactions
  2. Fee-market driven by regular transactions + ordinals / inscriptions
Jimmy is arguing that (1) is healthier for miners than (2).
Scenario (2) should always generate equal or more fees than (1) at any point in time. Both scenarios capture the demand for regular transactions, but in scenario (2) there is occasionally an additional demand driven by the latest NFT / token craze.
Scenario (2) is possibly also more unpredictable (reasonable assumption, but the market is still too nascent to tell IMO).
My problem: Jimmy has made this weird assumption that the increased volatility in (2) will be a net-negative compared to the additional revenue it rakes in. I don't know on what basis he makes this claim. I have yet to see a single miner complain about this theoretical problem.
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Yes it helped, but not convinced.
I can't know what is efficient, because it depends on individual human perspectives assessed in the moment. I don't think that these things are valuable but the market says that other people do.
Maybe it's corruption and gambling or maybe the lessons to be learned by people getting burned will be valuable for these people long term.
Also I can't know what will be a sustainable business model because the future is uncertain. What seems random on a short time frame can be very consistent over long time frames.
I want to be convinced, but "reliable block fee's" I think is not clearly good, it biases miners who are not agile and dynamic. Why would we want that?
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Sure, you get some blocks where the fees are greater than the block reward, but that's the exception, and not the rule.
This WILL be the rule at the margin, as block subsidy inevitably goes to zero.
Miners better start waking up to this new economic reality as what's currently an exception will be commonplace, if not in the 3.125 cycle, then definitely in the 1.5625 one.
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*Bitcoiners should be better than that.
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Spamcoins may make the network less useful and thereby depress the BTC/USD exchange rate over time, impacting miner revenue.
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Good points with a lot of merits
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