Draft proposal of Bitcoin fee burn mechanism (discussion)

[EmmaWu]

Hello everyone,

here is an idea that may be worth discussing, and could improve some of the Bitcoin features, it is pretty straight forward and would be interesting to hear your opinion on the subject:
    • Only a portion of transaction fees is burned (coinbase transaction output includes block subsidy and transaction fees minus the transaction fees burned);
    • Burn rate is set between 10% (lower) and 90% (upper) thresholds (90% constant burn rate is used in e.g. Bitgesell project https://bitcointalk.org/index.php?topic=5238559);
    • The change of burn rate is proportional to difficulty change (the network congestion/concurrency is regulated by the fee sizes, while if difficulty rises (more miners or more advanced hardware, more electricity used) -- the burn amount is raised to balance this (to keep the burn rate changes more dynamic in comparison to difficulty changes, it is calculated using constant multiplier);

the main idea is described here:
https://github.com/bitcoin/bips/pull/1237
https://github.com/wu-emma/bips/blob/draft/bip-burn/bip-burn.mediawiki

some prototype implementation just for a draft reference:
https://github.com/wu-emma/bitcoin/pull/2/files

Best regards,
Emma

[ABCbits]

The goal of burning is to skew the economic model towards being deflationary (current distribution model in bitcoin is geared towards constant supply and is not deflationary [Stop]).

Some Bitcoin already lost "permanently" due to
1. User mistake.
2. Software bug (e.g. pool doesn't claim transaction fee on mined block and generating private key outside valid range).
3. Sending Bitcoin to known burn address.
4. Sending Bitcoin to OP_RETURN output.

IMO such thing will always happen, so your proposal is unnecessary.

[odolvlobo]

1. Is there any benefit to an explicitly deflationary currency beyond increasing the wealth of holders? In my view, as a unit of account its value would ideally remain constant. Deflation is no better than inflation.

2. Why is the burn rate variable? Is the intention to discourage a rise in the total hash rate?

3. How would the proposal effect the business of mining? A variable burn rate between 10% and 90% would make it very dificult to predict revenue.

4. The security of the network against 51% attack is determined by the value of the block reward. Burning a portion of the block reward would therefore lower the security. Is that acceptable?

[bitmover]

1. Is there any benefit to an explicitly deflationary currency beyond increasing the wealth of holders? In my view, as a unit of account its value would ideally remain constant. Deflation is no better than inflation.

I agree 100% to this.

This is "fee burn" stuff is a shitcoin mentality.  People just print billions and billions of coins, then create a mechanism to slowly burn those coins to make them more valuable,  trying to pump the value.

Bitcoi  doesn't need that. Bitocin value is in its protocol, decentralization and technology.  We don't need to burn coins to make it valuable. The stability of basic protocol rules and mining economy is more valuable than that.

[BlackHatCoiner]

and could improve some of the Bitcoin features

Which features? The only thing fee burning mechanism brings is escalation of deflation. This mechanism should be implemented on cryptocurrencies that don't have a constant supply cap such as Ethereum, so there can be a handle of exaggeration.

4. The security of the network against 51% attack is determined by the value of the block reward. Burning a portion of the block reward would therefore lower the security. Is that acceptable?

Isn't this subjective? One may say that, economically-wisely, its deflationary properties are more significant than the security and therefore, we should burn a proportion of the block reward. Another who thinks oppositely, may support increase in the block reward making it inflationary, but increasing the security alongside.

Deflation is no better than inflation.

Isn't that also subjective? Doesn't it depend solely on which side of the political compass you're in?

[Quickseller]

3. How would the proposal effect the business of mining? A variable burn rate between 10% and 90% would make it very dificult to predict revenue.

4. The security of the network against 51% attack is determined by the value of the block reward. Burning a portion of the block reward would therefore lower the security. Is that acceptable?

I don't agree with the OP's proposal, however maybe something somewhat similar could be implemented in order to prevent a cartel of miners from artificially increasing tx fees.

A mining cartel could potentially confirm their own transactions to themselves that contain very high transaction fees. This could potentially lead to higher tx fees for real users if the remaining block space is not enough to confirm all *real* users' transactions. To the casual observer, these blocks would be full, but in reality only xx% of block space is being utilized after the "fake" transactions (that serve no economic purpose) are removed.

The above potential attack could be addressed by only giving 90% of tx fees to the miner that finds a particular block (block n) and the remaining 10% of tx fees could be given to the miner that finds the n + 5th block.

The miners as a whole would receive 100% of tx fees, there would be no deflation problems, and the above attack would go from being free to having a real cost. The above percentages and the x^th subsequent block could be adjusted upon debate, although miners should receive 100% of tx fees.

[odolvlobo]

4. The security of the network against 51% attack is determined by the value of the block reward. Burning a portion of the block reward would therefore lower the security. Is that acceptable?

Isn't this subjective? One may say that, economically-wisely, its deflationary properties are more significant than the security and therefore, we should burn a proportion of the block reward. Another who thinks oppositely, may support increase in the block reward making it inflationary, but increasing the security alongside.

I don't think it is subjective. The value of the block reward determines the cost of a 51% attack, which is what provides the economic security against such an attack.

Deflation is no better than inflation.

Isn't that also subjective? Doesn't it depend solely on which side of the political compass you're in?

I guess some political goals might be aided by inflation or deflation, but in my view, inflation and deflation are the same but opposite -- inflation is negative deflation and deflation is negative inflation. Both are equally disruptive by reducing the efficiency of an economy.

1. Is there any benefit to an explicitly deflationary currency beyond increasing the wealth of holders? In my view, as a unit of account its value would ideally remain constant. Deflation is no better than inflation.

I agree 100% to this.
This is "fee burn" stuff is a shitcoin mentality.  People just print billions and billions of coins, then create a mechanism to slowly burn those coins to make them more valuable,  trying to pump the value.
Bitcoi  doesn't need that. Bitocin value is in its protocol, decentralization and technology.  We don't need to burn coins to make it valuable. The stability of basic protocol rules and mining economy is more valuable than that.

If the goal is really only to enrich holders, then the proposal would transform Bitcoin into an explicit pyramid scheme. Currently, Bitcoin is kind of a pyramid scheme because of the "store of value" narratives, but I hope that it will outlive those narratives and eventually become real money.

[larry_vw_1955]

Hello everyone,

here is an idea that may be worth discussing,

may be worth discussing but yet you yourself didn't really discuss it much other than providing links to other websites. how about giving us a proper introduction to "fee burning" why it might be important etc. i dont have time to visit all those links. nor the patience to if you're not even willing to give a gentle introduction.
most importantly what do you think about it yourself.

[pooya87]

Several major cryptocurrencies introduced a model of token burning ~Ethereum,~ Binance Coin~
The goal of burning is to skew the economic model towards being deflationary

You are comparing apples and oranges and want to apply a strategy that works for apples to oranges!

The coins you named (or their tokens) have terrible designs for their total supply and/or have unlimited supplies. From time to time they burn their useless shitcoins to hype the project up and try to prevent the price from crashing hard.
This is not true about bitcoin with a capped supply that offers a great utility and isn't threatened by some massive crash due to uselessness as altcoins do.

Essentially your proposal fails to provide convincing reasons for its existence.

[Wind_FURY]

https://github.com/wu-emma/bips/blob/draft/bip-burn/bip-burn.mediawiki

If the purpose of the proposal is merely to copy Ethereum’s implementation of burning a percentage of fees, you should take into consideration that, 1. Ethereum doesn’t have a supply cap, and 2. Ethereum will be implementing Proof of Stake, and abandon the current model.

Plus what will be the purpose of burning fees? Fees will be the miners’ main source of incentive to secure the network. Why should the protocol give them less incentive?

[BlackHatCoiner]

I don't think it is subjective. The value of the block reward determines the cost of a 51% attack, which is what provides the economic security against such an attack.

The value of the block reward compared with the rest of the supply is what determines the cost of a 51% attack. If bitcoin had tail emission and the block reward was constant after a while, its value would slightly drop (ceteris paribus), but the percentage change of this drop would be much lower than the percentage change in the security.

I guess some political goals might be aided by inflation or deflation, but in my view, inflation and deflation are the same but opposite -- inflation is negative deflation and deflation is negative inflation. Both are equally disruptive by reducing the efficiency of an economy.

Yes, that's a way to define them, but they hide sociopolitical phenomena. For instance, with inflation, overconsumption is promoted. And I wonder, how can we deal with consensus if there are people among us who understand the value system differently.

[witcher_sense]

the main idea is described here:
https://github.com/bitcoin/bips/pull/1237
https://github.com/wu-emma/bips/blob/draft/bip-burn/bip-burn.mediawiki

The quote from the article you mentioned in your draft:

Despite this understanding, for decades prices for basic consumer goods have increased and quality decreased. This is because increased productivity requires a constant monetary base to be felt through prices. Money is the unit that measures this process. In a monetary measuring system with a constant base (i.e. Bitcoin), increased productivity will translate to decreased prices. However, if the monetary measuring stick is tampered with (i.e. printing presses), then prices will increase year after year despite massive increases in productivity.

The author argues that even though productivity has considerably increased, which means things can now be built much faster and cheaper, the prices of produced goods have only been growing so far due to the government's meddling with the supply of money. The key point here is that when someone tries to play with money's supply, that only distorts prices, economic calculations, and expectations. It also applies to your proposal since it aimed to change the supply of money by artificially lowering it. Why didn't Satoshi make bitcoin deflationary from the beginning? He could have premined 21000000 bitcoin and then come up with the algorithm to burn them slowly as more and more people join the network. Maybe he recognized that meddling with the money supply in any way is not a good thing by itself. Maybe, it is the free market, not some ruler or algorithm, that should decide what prices are?

[EmmaWu]

The goal of burning is to skew the economic model towards being deflationary (current distribution model in bitcoin is geared towards constant supply and is not deflationary [Stop]).

Some Bitcoin already lost "permanently" due to
1. User mistake.
2. Software bug (e.g. pool doesn't claim transaction fee on mined block and generating private key outside valid range).
3. Sending Bitcoin to known burn address.
4. Sending Bitcoin to OP_RETURN output.

IMO such thing will always happen, so your proposal is unnecessary.

Those 'losses/burns' and non-systematic, and more mature wallet software now performs more and more checks to help user not to lose funds due to typo in fee, address, etc. Those non-systematic events are not changing the model to deflationary, they are side effects that just exist (but they do exist, yes).
This proposal is for introducing this into a consensus, making it 'deterministically deflationary', especially when transaction fees would be larger than the block reward.

1. Is there any benefit to an explicitly deflationary currency beyond increasing the wealth of holders? In my view, as a unit of account its value would ideally remain constant. Deflation is no better than inflation.

2. Why is the burn rate variable? Is the intention to discourage a rise in the total hash rate?

3. How would the proposal effect the business of mining? A variable burn rate between 10% and 90% would make it very dificult to predict revenue.

4. The security of the network against 51% attack is determined by the value of the block reward. Burning a portion of the block reward would therefore lower the security. Is that acceptable?

1. Price is subject to supply and demand, we only adjust the demand. If Bitcoin does not make some adjustment, it raises the risk of it to be overrun by some other asset (for example, Eth, don't throw rocks, I know).

2. Burn rate is variable not to punish hash rate that is effective, but it could prevent too much 'horizontal scaling' of inefficient mining.

3. BTC price increase leads to difficulty increase, but as burn would also increase, it would serve as a feedback loop to regulate this. Miners won't get extra profit from BTC price increase, but would continue operate normally. Currently, the fees are less than block reward, and the change would be pretty gradual. The rate boundaries, and even the rules of altering the burn rate are very much open to discussion. More effective mines would earn more.

4. Block subsidy is not burned, this would provide a base for security still for a significant time, if difficulty is lowered, the burn is lowered too. At this current moment, the computational power used for Bitcoin security is so vast, that it is redundant (raising also environmental questions), and even if the difficulty goes lower to some value, it still would be sufficient to ensure the security of the network. The hardware would keep evolving and difficulty would go up because of this factor.

1. Is there any benefit to an explicitly deflationary currency beyond increasing the wealth of holders? In my view, as a unit of account its value would ideally remain constant. Deflation is no better than inflation.

I agree 100% to this.

This is "fee burn" stuff is a shitcoin mentality.  People just print billions and billions of coins, then create a mechanism to slowly burn those coins to make them more valuable,  trying to pump the value.

Bitcoi  doesn't need that. Bitocin value is in its protocol, decentralization and technology.  We don't need to burn coins to make it valuable. The stability of basic protocol rules and mining economy is more valuable than that.

This mechanism (using fiscal/monetary measures to regulate supply) was introduced since Austrian school. I would not personally call Ethereum a shitcoin (BSC too, but that has different opinions).


From one point of view a coin with capped supply and deflation is a better store of value than a coin with just capped supply. Bitcoin with deflation could stay attractive as an long-term investment tool for holders having the supply very gradually decrease over time. This would increase probability for Bitcoin to stay as #1 coin. Being on top is important for continued adoption and expansion of Bitcoin.

[BlackHatCoiner]

1. Price is subject to supply and demand, we only adjust the demand. If Bitcoin does not make some adjustment, it raises the risk of it to be overrun by some other asset (for example, Eth, don't throw rocks, I know).

1. What's the problem if it's overran by another asset?
2. How do you define “overrun”? Replacement? 'Cause if that's so, I have plenty of arguments that suggest otherwise.

3. BTC price increase leads to difficulty increase, but as burn would also increase, it would serve as a feedback loop to regulate this. Miners won't get extra profit from BTC price increase, but would continue operate normally

Difficulty increases, because the miners' profit does as well. Not just because the price increases. If you cut their reward in half and double the price, the difficulty should remain the same. Also note that after a while, the fees will be the main source of income. If you burn the fees, you will go down the pan.

4. Block subsidy is not burned, this would provide a base for security still for a significant time, if difficulty is lowered, the burn is lowered too. At this current moment, the computational power used for Bitcoin security is so vast, that it is redundant (raising also environmental questions), and even if the difficulty goes lower to some value, it still would be sufficient to ensure the security of the network. The hardware would keep evolving and difficulty would go up because of this factor.

I'm utterly confused. Will the difficulty increase or decrease over the long term? Should it increase or decrease over the long term?

[Quickseller]

A mining cartel could potentially confirm their own transactions to themselves that contain very high transaction fees. This could potentially lead to higher tx fees for real users if the remaining block space is not enough to confirm all *real* users' transactions. To the casual observer, these blocks would be full, but in reality only xx% of block space is being utilized after the "fake" transactions (that serve no economic purpose) are removed.

But it's not that simple to perform such attack, there are few consideration such as,
1. If they don't broadcast "fake" transaction to Bitcoin network, it's trivial to find out block mined by specific pool contain "fake" transaction by observing mempool.
2. If they broadcast "fake" transaction, they'll lose their money since the transaction could be picked by other pool.
3. Is it more profitable compared with simply including transaction starting from highest fee rate?

The pools could claim they received the "fake" transactions "privately" and could even offer a service to privately confirm transactions without them being broadcast. Or they could argue the transactions were broadcast, and it would be difficult to prove them wrong unless someone is actively watching their node's mempool.

These pools would probably not be the types of pools that are common today. It would be likely that they compromise of private entities holding a large amount of hashpower.

[thecodebear]

Burning is a gimmick used by cryptos to artificially boost price when those who control the crypto are afraid the appreciation won't keep up with people's hopes. It's a cheap gimmick. Bitcoin is hard money. Bitcoin doesn't need cheap gimmicks. Biggest is the hardest money humanity has ever created not just because of the supply cap and the perfectly known and transparent issuance, but because it's monetary fundamentals don't change. Starting to change the monetary fundamentals of Bitcoin would make it more like any other crypto - it'd make it weaker even if the goal is artficially boosting the price.

[larry_vw_1955]

Burning is a gimmick used by cryptos to artificially boost price when those who control the crypto are afraid the appreciation won't keep up with people's hopes. It's a cheap gimmick.

you're damn right about that. the concept of "burning" never made any sense to me. what it means is you overprinted your money supply in the first freaking place. enough said.