Well, they're not paying anything; they're not incurringna cost to cover the security they derive.
Take this idea to an extreme. If *everyone* holds, then the value goes to infinity, right? Well no, because miners stop mining entirely because they won't get paid. There's a curve here, it's not a linear relationship. It's not long term viable, pressing the price up only generates more miner revenue for the same number of coins to a point, and there's a point at which that upward price pressure is outpaced by reduced number of transactions. This is like a cold staking scheme and is not stable or long term viable at all.
Ultimately, the only way to pay for the ongoing cost of security is to have an ongoing cost to holding.
As far as block size... The goal is to secure the network by creating blocks with high difficulty, as well as to process transactions. The smaller the block size, the less transactions you can process. This accelerates what I talked about above since transaction fees double if the block size is half, and as I explain above, constricting supply isn't enough to make sure miners are paid well enough forever. Take this to the extreme too: a block size of 0, in a supply capped coin, will ensure that all miners stop mining forever because there will be no transaction fees. Unstable, not long term viable, similar math and incentives as above.
I don't understand how a bigger block size incentivizes miners to attempt a reorg. If you can explain to me how that would work I'd like that, maybe I'm missing something but I don't see it.
Replies (2)
Increasing block size could incentivize a reorg because fees per block fall, so some number of miners become unprofitable - the most expensive/least efficient miners. They're still hitting nonces at the same rate as before, butwity the payout lower, it could make sense to start turning off the miners with the highest cost per hash. At some point, you could have a lot of hardware sitting around, and at some point its enough to attempt a reorg. I'm not super familiar with this stuff, so I'm just conceptualizing. Idk for sure but I think the bigger the reorg (further back in time), the more hash is required. So if hash is coming offline because fees are low, then there's a curve you could plot where hash profitability is negatively correlated with the depth of a potential reorg. So expanding the block size has to be done very carefully, at a slower pace than new hashrate coming online.
The opposite would be no problem - reducing block size increases profits per hash, so previously unprofitable miners could be profitable again. Of course there are limits, like if the economy is dependent on opening and closing lightning channels and block size constricts the possible throughput regardless of fees.
So block size increase doesn't necessarily reduce fees paid per block, unless demand for block space is lower than block size. Ideally you want blocks to always be full.
But a blockchain where new transactions are in the mempool waiting for a long time, if you double the block size, all the miner will do is add those in this block. It increases his income because he gets more transactions per block. The payout per block goes *up.* Fees go down so more people transact on chain.
This is what dynamic block size in Monero is for, block size is only increased if it is profitable to do so, that way blocks stay full but can grow dynamically if demand increases. This is a queuing theory problem, you should look into queuing theory.
The opposite can raise block fees, but can reduce profitability for miners, for the same reasons as above. Also, note that a primary reason for mining is processing transactions. Reducing block size doesn't make the network more useful and therefore valuable. Halving the block size doubles fees, doubling the block size halves fees, the miners make the same either way, but the utility is reduced when block sizes are smaller. It may be the case that it enables regular people to run nodes because the blockchain size increase is less, but again, unless you have to store the entire history of the chain to get 100% security guarantee, that's a non issue, a protocol like we talked about with MW doesn't need a block size at all.