Reclaiming the miners' autonomy and unleashing the capitalist power of Bitcoin
Recently, nChain and Coingeek announced their Miner's Choice Initiative which has been described as possibly encouraging development of colored coins / tokenization of assets on Bitcoin, and opening up for the use of smart contracts to build apps on top of Bitcoin. An example use-case would be a colored coin which denominates its tokens as 1 sat = 1 token. Another would be that messaging apps like Keyport can exist with 0-fee features. Additionally, it may serve as a selling point for recruiting users by being able to advertise with literal 0-fee transactions. This has sparked some interesting discussion in the Bitcoin community, and this piece aims to serve as an analysis of the implication of this initiative and how it aligns with Bitcoin's capitalist economic system.
The announcement says:
- "Dust limit" of 546 sats will no longer be enforced on their software - meaning transactions as low as 1 satoshi may be sent from A to B.
- They will allow an undisclosed (the number 1000 has been suggested) amount of 0-fee tx to be processed pr block.
Other than the potential use-cases and user attraction - what this also, and maybe more importantly implies, is that it is the miners' way of stating an independence from previous and outdated social governance (the agreed upon 'rule' of 546 satoshis), and starting to behave as autonomous actors within the capitalist economy of Bitcoin pursuing profit in any way possible, including tweaking their software. There has for a long time been an on-going smear campaign against miners, which is to a very large extent inaccurate and dis-informative to the users of Bitcoin. To understand the underlying mechanics of Bitcoin, we must always look at the economic incentives which are in place. Miners are incentivized to process the transactions which the users of the network want to propagate. Further, they are incentivized to spread the use of Bitcoin - as this means more transaction fees for miners, which becomes an exponentially higher priority as we move towards lower block rewards, and miners in turn relying on tx fees over block rewards.
In this pursuit, anything within the Bitcoin protocol goes.
An agreed upon limit saying "only tx above 546 satoshis are allowed, and everyone must abide by this rule" is akin to the idea of "Minimum wage must be 2000 USD and all must abide by this" and not to mention "1mb blocks is the definite limit for Bitcoin". Simply put, on a principle level, it is a centrally planned concept, which miners actually are free to alter at will, because Bitcoin is permission-less, and central planning has no place. Sure a group of miners can together agree on doing things a certain way - but at the end of the day, nothing is stopping one of them from deviating from that. What nChain and Coingeek merely has done, is to bring awareness to this fact, that miners can choose, they are not subject to socially agreed upon 'rules' outside the Bitcoin protocol. This realization in turn potentially empowers miners to act and alter their software in such ways to out-compete on another. What we need to also realize is that they will now process 545 satoshi transactions, 544, 533 etc. If these transactions come with a transaction fee, it literally opens up for further increase of their own profits. In essence - they can now process MORE 'types' of transactions, which obviously is a desirable thing as it means more fees in their pockets.
Miners will more than likely only do this as long as they deem it a profit generating venture - and if they are convinced allowing 0-fee transactions will attract more users, it seems plausible that they will introduce this feature in more mining pools. If it reaches the point where accepting those transactions is no longer profitable - their behavior will change accordingly - such is the nature of the free market capitalism that is Bitcoin.
The heart of Bitcoin
Miners will tweak their hardware AND software to produce the best results, simply because they have to, in order to compete with other miners - this is at the heart of Bitcoin. Whereas in many aspects of modern society, there are economic incentives to commit immoral and unethical actions, the story is much different in Bitcoin. The economic incentive miners live by directly 'forces' them to grow, strengthen and secure the network, continuously! It is 'greed' channeled into a system, which may assist the economic liberation for people across the world.
When Bitcoin Core's fees exploded, no one could govern what miners should and should not do - besides pay more money to advance their spot in the line of having their tx processed. This is a clear portrayal of the powers that miners wield, how much the network relies on them, and how potent the economic incentives are. With bigger blocks - and more transaction volume now possible with Bitcoin, it is helpful to understand that miners will use any tools at their disposal to better compete, and to understand that miners using all tools at their disposal, actually benefits all users of the network. A constructive approach to this announcement would be: "How can we utilize these new features of 0-fee transactions and sub 546 satoshi transactions in order to grow the user-base, build useful applications and enable users to take advantage of them?"
Behind the pay-wall is a couple of quotes from Satoshi Nakamoto 0-fee transactions.
Thank you for reading!
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