Something I've been thinking about is that proof of work "coins" are basically energy credits. When energy is cheap, miners can lower their fees and keep the same return, leading to more economic activity. When it is expensive, they need to raise their fees to stay profitable, thus reducing economic activity.
I think this makes sense. Wouldn't it be beneficial if economic activity scaled with energy availability? It also creates a direct incentive to develop and utilize the most efficient energy sources possible, without regard for the politics between various stakeholders (hydro vs oil vs coal vs wind vs solar, etc).
This isn't how fees work. Fees are based purely on supply and demand. The payer sets their fee level when they create the transaction, and it's up to the miners which transactions they will include. Since there is always an excess of transactions, the miners typically select transactions to maximise their payoff.
If miners were to "lower their fees", they'd be accepting low-fee transactions and excluding high-fee transactions, which makes no sense for anybody. The miners would be getting less money than they could, and the people paying high fees don't even get any better service for it.
The miners must set a rough minimum fee though. If energy costs rise enough at some point the miners will need to slow/shut down unless the sum value of the fees (in whatever currency is used to pay for the energy) rise above some threshold.
I'm not even considering the block reward, consider when there are only fees (or block reward is negligible). In that case profitability is determined by energy/hardware costs vs fees.
If costs go up (eg energy becomes scarce) the minimum fee also need to rise. Each "unit" of economic activity using the currency will be more expensive when energy is scarce than when it is abundant. This is a natural feedback loop.
If costs go up, mining activity drops. Miners can not increase transaction fees. All they can do is accept the fee they're offered or not.
If they're mining blocks at all, they want to accept the maximum fee that is offered. If they say "you guys aren't paying enough, I'm going to stop mining", then other miners will just get the fees that people are offering instead, and when the difficulty adjusts downwards, the miners that stopped mining might start mining again.
You seem hung up on the fact that miners do not broadcast a fee as part of the protocol. Ok, nobody is arguing with that in this thread...
It is just like I will not pay $2000 for a cheeseburger. I am not going to advertise that, I simply will not buy it. There is some maximum price that I set for myself.
However, the role of difficulty adjustments is a better point. As energy costs rise there could be two (non mutually exclusive) effects:
1) Fewer transactions are made with higher fees
2) Mining slows down, leading to a difficulty decrease, leading to less secure transactions
Less secure transactions means waiting for more confirmations to get the same level of confidence there will be no double spend. Is this not another, less extreme, way to slow economic activity in the face of increasing energy costs?
When energy becomes cheaper, miners can do more mining, leading to an increase in blocks. Given that people are only willing to pay so much for a transaction to complete, there is only so much demand at a certain price point. Once the supply of blocks increases, you eventually have price points where the demand no longer matches the supply. At this point a miner would lower their fee until the demand increases back to supply.
Supply and demand drives prices, but it does so through individual actors setting prices they are willing to pay/accept (or by algorithms that have been setup by some human who set up the rules by which it will set prices).
They're not "lowering their fee". That's not how it works. They might stop mining altogether, but it can never cost more to include a transaction than not to include it, unless including it pushes out another transaction that pays a higher fee.
So a miner will never reduce the cost to include a transaction into their block, even when they aren't getting enough to fill up the block?
>They might stop mining altogether
Maybe, but any market can experience short term irrationality. Maybe it takes them a few hours to stop mining in which they lose money. Or maybe stopping operations costs enough money that the miner won't stop even at a small loss, at least for some amount of time.
> So a miner will never reduce the cost to include a transaction into their block, even when they aren't getting enough to fill up the block?
Sure, if you want to twist the wording like that, they "lower the fee" to the point where they can fill the blocks. But they're not really "lowering their fees". They don't even have a concept of the fee level they're "charging". They can either accept the fees that are available or not.
If they are mining at all then they want to accept the best fees that are available. There is literally no rationale for them to be mining non-full blocks when fee-paying transactions are available to put in the blocks. It's not like it costs more to mine a larger block. The cost to mine a block is fixed, so you may as well get as much fees as you can find.
>They can either accept the fees that are available or not.
Couldn't the same be said of a brick and mortar store? They either accept the offers they are given or they don't. That for some item they only accept offers of exactly 9.99 (plus tax), rejecting not only lower offers but higher offers, doesn't change that the interaction can be described in the same fashion.
All the rest also applies to normal supply and demand. When you do a production run of some item, the cost tends to be fixed per item. Doing another run at a different time may cost different, and it is possible for something extreme to happen (factory accident), but in general the cost of production of a single run is the same.
I see nothing about this that would void basic economic reasoning, where things like 'reducing fees' happens in certain conditions.
And economics can easily account for that. Instead of saying the cost needed to product some number of blocks changes over time by 0, you instead say it changes over time by f(t). You then subtract f(t) (or add, depending upon how you treat the sign) from any actual decrease in cost to mine, and then apply the same logic.
Say the cost to mine falls by x (cheaper energy or some others amount), and x < f(t). x - f(t) < 0. The decrease in cost is less than 0, meaning the cost effectively increased since it didn't decrease by the amount needed due to the built in difficulty increase.
Normal economics works this same way due to scarcity, though the default change in cost into the future is far less sure of a thing. Take mining gold. Given that gold is mined from the cheapest to mine spots first, the more gold you mined, the more the cost of mining the same amount of gold. Maybe a new mine filled with easier to mine gold is found, maybe a current mine runs out of gold much sooner than expected, but it works in a similar manner.
I think this makes sense. Wouldn't it be beneficial if economic activity scaled with energy availability? It also creates a direct incentive to develop and utilize the most efficient energy sources possible, without regard for the politics between various stakeholders (hydro vs oil vs coal vs wind vs solar, etc).