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Lately, a common reoccurring complaint has been that fees are too expensive. Whilst we don't disagree with that statement, we have to thoroughly analyze the situation first.
Furthermore, the notion of devs having to release new binaries with lower fees is myopic, because i it'd merely kick the can down the road, ii changing the constants or formulas requires a hard fork, i.
Let's start by comparing Monero's per kB fees to the per kB fees of other hybrid proof-of-work coins. As you can see, the per kB fee of Monero is fairly low. Note that the transaction size is this big due to Monero's inherent default privacy, i. RingCT, however, was absolutely necessary to strengthen the privacy of the network. More specifically, there were a lot of privacy "leaks" when Monero didn't mask amounts yet. To thoroughly analyze the situation, let's continue with examining the constants.
We start with examining the penalty function and the dynamic block size algorithm. The formula is as follows:. Note that the formula of the BaseReward is defined as follows:. Note that the minimum block size limit is kB. Thus, miners are able to construct blocks up to kB without incurring a penalty. In other words, aforementioned penalty function only "kicks in" for blocks bigger than kB. Now, a default transaction in Monero, i. Let's plug this into the formula:. Note that the BaseReward was significantly higher months ago, which translates to a higher penalty.
Now, miners need incentive to expand the block size. Therefore, the fee from including one additional transaction above kB needs to outweigh the penalty. Otherwise, miners will simply fill blocks until kB and exclude any other transactions, which would lead to a congested network and a large mempool.
As you can see from aforementioned penalty function, the penalty will go down when the base reward decreases. Furthermore, as can be easily spotted by graphing the function, the penalty function is more "lenient" in the beginning of the function. This means that any decrease in transaction size translates to a bigger than equal decrease in fees. Let's play around with the formula to get some more concrete numbers.
Now, let's also assume that we want to incentivize miners to expand the block size with two transactions without losing revenue. That is, they will be able to include two additional transactions above the minimum block size limit without the penalty outweighing the fees. Plugging in the numbers, we get:. Therefore, it could be that the minimum block size limit would be lowered to , , , or kB.
Let's plug in the numbers again:. One might ask oneself, how does the dynamic fee algorithm come into play? First, to clarify, the default fee is set to account for the penalty in a bare minimum case. That is, a case where miners expand the block size with one additional transaction above the minimum block size limit. More specifically, in the current situation it would mean creating a block of kB to reiterate, the minimum block size is kB.
Once the median block size of the last blocks significantly diverges from the minimum block size, the dynamic fee algorithm comes into play. As we can see from the formula, this approximately matches the theoretical fee.
Basically the inverse of the percentage increase of the median block size against a base of the minimum block size translates to the percentage reduction in fees. So why did the significant price increase not lead to a significant reduction in absolute fees, i. Well, basically, the factor increase in price was significantly higher than the factor increase in usage.
Furthermore, the median block size needs to be constantly above kB in order for the dynamic fee algorithm to work properly. Moreover, the algorithm was designed to correlate with price, but, as we can see, price is imperfectly correlated with usage. In sum, whilst usage has grown a lot, it hasn't grown as much as the price and therefore fees in XMR terms have not declined yet. From combining the penalty formula and the dynamic block size formula with the dynamic fee formula we can infer that a higher minimum block size limit for example, kB leads to lower initial default fees, but fee reduction by the dynamic fee algorithm being somewhat "slow".
By contrast, a lower minimum block size limit for example, kB leads to higher initial default fees, but faster fee reduction. In conclusion, whilst fees are currently too high, they, most likely, won't be anymore in the future. In addition, more research has to be conducted on the topic of the minimum block size limit, because, preferably, we'd like to use a limit that doesn't require future intervention anymore. A more in depth analysis by ArticMine of the penalty function can be found here.
The penalty function in the original CryptoNote whitepaper is somewhat different. More information can be found here. Code details and the actual implementation of the dynamic block size algorithm can be found here. Code details and the actual implementation of the dynamic fee algorithm can be found here. Cryptography , Monero Research Lab. Team Hangouts Sponsorships Merchants. A note on fees. The formula is as follows: M N is the median of the block size over the last N blocks, with N being in Monero BlockSize is the size of the current block BaseReward is the reward as per the emission curve or where applicable the tail emission NewReward is the actual reward paid to the miner The maximum allowed block size is 2M N Note that the formula of the BaseReward is defined as follows: In addition, the current circulation emission displayed on the block explorer has to be multiplied with 10 12 Monero uses 12 decimal places to convert it to atomic units.
Let's plug this into the formula: Assuming a current BaseReward of 5. Plugging in the numbers, we get: Let's plug in the numbers again: Let's examine the dynamic fee algorithm: A few remaining notes: Median fees were taken from Bitinfocharts.