This article tells about an important aspect of Giant economy and coin inflation: burning transaction fees. Let’s see why this measure can increase the commonwealth of all network participants contrary to what one may imagine at first. In this material, you will also find out about the current unfair situation with miners and stakers who get too much money and what makes us thinks so.
Due to the unlimited supply of GIC units, the question of digital currency inflation becomes one of the most important for the Giant team. The same problem has been described by Ethereum creator Vitalik Buterin who even voiced a possibility 1 of making ETH units to expire over time. In every Ripple financial operation, a part of a transaction is also burned2. Our project has also discovered a somewhat unfair situation: miners’ contribution is currently overestimated. Let’s see what miners get after producing a new block: a reward together with a separate fee. Meanwhile, this block and all its transactions have to be validated by other network nodes without any special rewards! A possible answer would be not to add a sum of all transactions to the block reward — in our case, this is actually what the block commission burning is all about.
A usual commission fee or a transaction fee is the difference between the sum of outputs and the sum of inputs. This fee is sent to the miner or the staker. Inputs are transactions you can refer to when making a new one, for instance: “I’ve had 4 bitcoins sent to me yesterday and 5 bitcoins today, this means I can spend 9 bitcoins tomorrow”. Outputs, without diving into tech terms, can be called payment process branches.
The upcoming global move of digital currencies to the PoS (Proof-of-Stake) consensus algorithm makes the traditional commission distribution even less logical — unlike miners, stakers do not conduct a difficult and energy-demanding process of mining. After all, one should appreciate the enthusiasm with which miners buy and establish large farms, renting vast hangars and holding negotiations with the authorities. Nothing remotely similar to this will be done by stakers.
Additionally, the total sum of the burning fees will become a driver of the growth of price of the digital currencies which use this mechanism. Imagine dollar printing operations completely unrestricted — and you will get the idea why we need to burn fees which are, as we have to remind here, are made in the cryptocurrency units. Less cryptocurrency units means a bigger value for a coin.
Quite interestingly, burning fees can eliminate a serious cybersecurity problem, Giant developers tell. Due to the fact that digital currency is still at its early stages, hackers can use the so-called ‘spam transactions’ to overload the system. Speculations have mounted that rich miners (mining whales) can multiply useless transactions to attack a blockchain of a desired cryptocurrency.
Our blockchain engineers further explain that GIC stakers would still get their reward, but the transaction fees for a new block can become even bigger than the reward itself. This will lead to a situation previously unimaginable in the PoW (Proof-of-Work) environment: new block leads to less cryptocurrency. Those people who are familiar with Bitcoin can remember that in its engine, new blocks usually mean more coins, but Satoshi Nakamoto’s digital currency has a finite supply of 21 million bitcoins3.
So far, burning fees doesn’t play a significant role in Giant economy. Due to the low size of transactions, the sum of burnt fees is equal to 7.766 GIC from 58064 blocks. Nonetheless, it should be seriously reconsidered in the light of future implementation of Giant Contract and related products. Smart contracts deployed in the Giant blockchain will consume much more block memory and require higher fees which is the major reason why the above-mentioned number will change. In order to assume the impact of it, we run the simulation of number of smart contracts in the network using estimated memory consumed by the one. Smart contracts in the Giant blockchain use memory for code storage and running cycles of code. Also, we have adjusted the value of fees by using the network load as a reference and increasing the number of transactions caused by one additional smart contract.
From the data compiled above, you can see that inflation which is usually perceived as one of the main economic issues of digital currencies with unlimited supply will be compensated by burning fees. Moreover, the expansion of potential usage of the Giant network will lead to the number of smart contracts that can cause negative emission. For example, in our simulation the critical number of smart contracts is 323. Nonetheless, once we have more accurate values, these estimations will be updated and provided in a new material.
In conclusion, we would like to summarize why Giant have installed the burning fees mechanism in its protocol: less coins means more value for the remaining units, while miners (and especially stakers) become less privileged in comparison to traditional algorithms. Hackers would not be able to generate small transactions and undermine the viability of our digital currency.
During the initial planning, these three major reasons led the Giant team to believe that transaction fee burning would actually benefit the whole community for the use of the network — every coin on every wallet would become more valuable. We will be able to fully see the positive consequences after the introduction of our smart contracts which will use large amounts of block space.