So I would like to introduce Francisco Cabanas, otherwise known as ArcticMine. He is on the
Monero core team. He's going to be speaking with us about the economic impact of COVID-19
and transaction capacity and fees in Monero. So I'm going to go ahead and pass that on over to
him. ArcticMine, go ahead and take it away. Thank you. Thank you for the great introduction.
So the topic that I'm going to be speaking today is about drastic external impacts
on the Monero network, high response, and what kind of impacts they would have.
Now, the initial scenario that I'm looking at, we're going to have a scenario,
and then we're looking at the aftermath, what happens. So you throw a disruption, aftermath,
what happens if you don't change the protocol, have a proposal, implications of the proposal,
and then some questions and discussion. So what actually started the scenario was an issue raised
by user Yukoi HB, and actually a very important issue. And I'm going to quote what he said,
and this is quoting straight from the GitHub issue. Imagine adoption humming along and the
long-term median gets really high, say 100 times the current default penalty-free zone.
Suddenly, catastrophe hits, and several major sources of transaction volume are taken offline.
Short-term transaction volume collapses to five times the default penalty-free zone,
and nominal fees are practically 20 times higher. Now, the scenario we're talking about is about
1,000 times of the transaction activity in Monero. This came up in February, just before the awareness
of COVID-19. And then within a few days after the issue came, the start of the awareness of COVID-19,
which is actually a perfect example for the issue. Pandemics was not referred in the particular
issue, and I have a link below to GitHub for the research project issue, and I would suggest that
there we could do a lot of also discussion on some of the technical solutions.
Now, Monero has a long-term median, and it changes every... it's 100,000 blocks,
so it changes up to 50,000 blocks, and that's around 69 days. It's about a couple of months
and a week. And this is an important time frame to consider, because what's happening here is that
at that point in time, it changes, and it's a scenario, and it has very significant impacts.
And we're going to look at possible causes of an external disruption. Now, for example,
one of the measures is a disruption of various Monero markets that believe in the issue. One
of the issues that was mentioned was, for example, a closure of a very big
DNN market, and what impact that would have on transactions. And then this category, I would say,
is an impact that doesn't impact the traditional finance system. The second group that I'm
including, which impacts on the international finance system, would be things like COVID-19,
and the awareness that you have of the issue. The issue I should discuss, the possibility was
of a limited nuclear war, and the kind of consequences of that, national disaster,
major economic disruption. What we're talking about here is events, external events,
that cause major economic disruption, and how that will impact the Monero network,
and also, in particular, how will it impact the fee structure, and how we can respond to it,
and some changes that are needed to do that. Now, the next slide is really interesting,
because we are considering a very sizable series of scenarios. One thing I should mention in the
previous slide, the numbers we're talking about will have a very high fee, sorry, a very high
price on Monero. So there's no recovery, or a very long, slow recovery. So this is where
you see the collapse in transaction rates, and it just sort of dies there, and nothing happens,
and maybe a few years down the road starts to recover again. And the DNM market is a good
example of that. And so in that case, you basically have, in that scenario,
relatively little impact on the network, you do have the fee impact.
The next one is a recovery within the long-term median, and that means that
you drop, and then you come back up again within the 69-day time frame. And that means that the
recovery level for transactions within the Monero network is really only five times,
could be as high as five times. And then the third example is we start a long-term median,
and it collapses completely, and then we are going back, we have to recover
the full 20 times in the example, plus, say, an additional five times.
The key to understand is this, an impact of the event on traditional finance. So if it impacts
the banking system, if it impacts financial, can also have a significant impact on transaction
demand, and this is going to show up in the recovery phase. So when we're trying to come out
of this, all of a sudden everybody wants to use Monero because there's problems in the banking
system. So not only do we have to deal how we get the median back up again to where we were,
but now we have all this additional demand because the other guys are having problems.
So let's look at the examples.
Let's say that there's no impact on traditional finance. So in this example,
this interruption of the Monero markets, the likely result is no recovery.
So it's a long process. So basically, you have replacing markets come up, even a possible
negative impact. You basically have a long recovery, and nothing particularly happens in
this scenario that really requires a lot of impact on the protocol, except for the fee question.
Let's look at the COVID-19 example. This is a great example of the external
scenario. So what are we looking at here? Well, either it's going to recover right within the
two months to 69 time frame, in which case, and then you get the demand,
or maybe it's a bit delayed. And then you have the full collapse in the long-term medium,
and this is critical. And then you have to make up not just 20 times the transaction, but maybe
100 times. So you really have a big upswing afterwards. You suddenly have to ramp up the
whole network, not just because of the impact, but now because everybody else wants to use Monero
because there's a problem somewhere else. And that's the key distinction when you're impacting
traditional finance. So the other two examples, the limited nuclear war or the... do parallel
this in a similar way, or can parallel it, as it will be, say, a very disruptive volcanic eruption,
this kind of things, can actually have a similar impact economically, and the parameters are
comparable. I will focus primarily on COVID-19 simply because we're living right through it.
This is a perfect example of the type of scenario. So we step back for a moment and ask the question,
what exactly did COVID-19 do to the Monero network? Well, what did it have... did the
standard Monero stop functioning? Well, no. Did the blocks stop being mined? No, the miners shut down.
No. Did the developers shut down? Did the functionality of the community shut down?
To most extent, no. The only thing, basically, we're seeing a significant impact is the fact that
we're delivering these stocks virtually. We did have to cancel Confranco in Berlin.
So we had some impact, but relatively minor. The core components of the community,
of the network, the clearance of transactions, all this happened, no problems.
Now, compare that with the banking system. Bank hours were changed, bank branches were closed,
lineups outside, people wearing masks, plexiglass screens on the tellers.
When you look at the impact, they're way more significant. We take a look at payments. Well,
the biggest one, actually, is that we've been in card payments, an increase from
in card type and a drastic fall in chip and PIN. So there's been this movement in the type of
credit card transaction. There's been some drop in cash. Part of the idea being is that certain
types of payments are perceived to be propagating the COVID-19. And obviously, if you're sitting on
a pin pad and inserting a card and fiddling with the terminal and touching all the absolute tips
of your fingers, your chances of spreading the virus are much higher than if you just
bring the card to the terminal and don't touch anything. And this is a so-called contactless
card tap. The reality, however, is in a lot of card taps, there's still a lot of fiddling.
And merchants expect you to touch buttons. And I have actually refused to do that. It's quite
interesting. And so that's one element. Then there's cash, which is kind of in between,
obviously better, worse than a totally contactless card tap, but far better than chip and PIN.
And in this picture, you consider a cryptocurrency payment. Now cryptocurrency payment,
in order to use it, you have to be contactless, because basically what you're doing is you're
aligning QR codes. So you've got your phone, you're going to align the QR code, you're going
to do it at a distance. It does not work if you touch it. So this is really interesting.
If you want to pay with Monero, you can't propagate the virus. You have to go out of
your way to do it. With the other payments, you can't. Well, the other ultimate best. Well,
major unemployment, business failures. You walk around the city, all these businesses are
closing. Massive increase in government debt. Governments have responded to the problem by
going into debt and trying to mitigate the impacts. And a massive intervention by the
central banks on increasing the money, the fiat money supply. This is mitigated. It's fine. It's
mitigated to some degree, but it also has long-term implications. One major impact, obviously, is if
you increase the number of unemployed people, you're going to disrupt car payments. And the
reason you're going to do that is because people are going to suddenly lose their credit scores,
and they're not going to be able to have credit cards, or they're going to be afraid that their
debit account in the bank is going to be seized. So there's going to be a push towards cryptocurrencies
just from this element. I don't even want to consider what could possibly happen if
it's a major disruption of the banking system, and we still haven't got to that stage.
Everything is kind of okay, maybe. The Federal Reserve and the European Central Bank,
the Bank of England, the Bank of Canada, they're trying a very delicate job between hyperinflation
on one side and collapse of financial institutions on the other. It's a delicate position. I honestly
would not want to be in their shoes for what they're doing. It's a lot easier dealing with
the Monero side of this. So one possible impact is a significant shift towards the use of
cryptocurrency in payments. And this would be way greater in the original scenario, but could
even occur in the current situation. So what you can see is that there's a demand on the Monero
network, even as it is right now. And in many ways, this is a bit of a warning. And if something
were to happen with the Federal Reserve and the banking system, something were to happen,
even in a smaller country, we could suddenly face ourselves with significant demand on transaction.
The story is not being ended on this. So we still have the possibility of the risk
of having to deal. And that means at every level. Everything from helping newbies on how to
set up their wallets, to making sure your notes are up to snuff, to cleaning,
upgrading your internet connection. I mean, the reality is we could find ourselves having to roll
up our sleeves at every level in the community. Just as the result is just because of these
disruptions, there's suddenly a big demand on the network. So now let's take a look at what happens.
No changes to the protocol. So we look at the protocol right now. First of all, in this scenario,
and it's very important, we're doing a thousand times increase in the Monero transaction volume,
because basically we are running right now about a tenth of the penalty free zone. So we're talking
about basically 30 megabytes versus 30 kilobytes that we have today in transaction volume.
One of the implications of this is if you look at the equation of exchange
and you make some reasonable assumptions, and no change in velocity,
and a constant, then we're talking about a potential price for Monero of around 100,000
US dollars. This sounds significant, but if you're going to increase the transaction
capacity demand of the Monero network by a factor of a thousand, and it's fair to realize that
assuming the velocity doesn't change and it hasn't come from somewhere, and the distribution
doesn't change, so obviously the only thing you can move is the price. So now if you increase Q
by a factor of a thousand, you've got a decreased P by a factor of a thousand, which is the inverse.
So effectively what we say instead of $100, it's $100,000. Now there's variability. It could be
$10,000, it could be a million, but there is definitely a factor here. And quite honestly,
I mean, if a whole bunch of people are transacting the Monero network to that level, then there's
also be a lot of investors are suddenly going to be interested in this cryptocurrency that's
actually working and that you can actually use. To put it in another way, you have a practical
use scenario in place. The thing to understand is the fee in current terms will not change
significantly. So our fees would be roughly a bit higher, and this is mainly due to the fact
that we still have the ten-fold increase until we get to the penalty-free zone, which has an impact
on fees. And it's counterbalanced by things such as a drop in the emission-cum-to-tail emission.
And we're going down to also some of the improvements such as CLSAG and so on.
So that's kind of what... so we're talking about $0.04 USD for two-in-two-out transaction,
even though the price has gone up by a factor of a thousand. That's one of the beauties of the
Monero protocol. As you increase the block size, the fee for transaction goes down. So if you have
this assumption, you have essentially a constant fee, close to a constant fee, in terms of
a sort of fixed USD. By the way, I'm talking about USD as of today, so you sort of factor
in any changes in the inflation rate. So what happens if you don't change the protocol? Well,
okay, so the 20% increase in fee, this really goes from, say, $0.04 or $0.80, you'll see.
And the interesting thing there is, the issue can be really disruptive if you have
multi-signature transactions that are created ahead of broadcast. So for example, you create
a transaction, you have multiple signatures, you engage in some business arrangements,
and then like three weeks later or five weeks later or something, you want to
broadcast that transaction, and now the fees have changed on you. And that was one of the
main factors in the protocol question. I mean, you know, how do we deal with these situations?
And that's the fee impact question. So there's a real need for minimum fee predictability for
a given period of time. And as I said, the free impact applies to all three recovery scenarios.
So the white economy, where you have first number one, no recovery, very slow recovery,
the recovery is fine. I mean, there's no real stress on the protocol,
but the fee issue remains. We're just dropping it and we're not really suddenly putting more
demands on the network. Now, in the second case, it starts to get a bit more interesting,
because what happens there is you suddenly have a five times increase in demand scenario.
So you're pushing your protocol. So you can kind of manage it, but it's far from ideal.
You're pushing the limits of the growth rate of the long-term median, depending on the rate.
So that's a bit tight, and you still have the fee issue.
It's kind of possible, not ideal, but manageable.
But the part serious problem is this one. What happens with the third example? Now you drop
the long-term median by a factor of 20. So you drop down, and now to recover back again,
you have to go into this two to three year period just to get back to where you were,
and then also to then allow for the addition. It's just too slow to recover. So you don't have
a recovery protocol. You drop, you can think of it as a big bang attack in reverse,
where you actually suddenly drop the transaction, and it has real consequences.
And this is actually a real serious problem that was identified in this issue indirectly,
but definitely very good. So what are we going to do in the proposal? Well, number one,
we increase the growth of the long-term median of 1.2x to 2x. That alone will address these kind
of recovery issues to a significant degree. It's about 30 times versus five times in a year. So
there's a real increase in the rate of growth, and that's important.
It gives you that flexibility, that ability. Now there is a 50 plus factor in there for searching,
but that's okay. B, and this is the critical part, you limit the decay of the long-term median to
half. So what we say is, at the end of that 20-time drop, we don't drop the whole thing all
down to 24, we just drop it to four. And then we wait another 69 days and drop it to four again,
and so on. And then the third proposal was to set the penalty-free zone to the maximum, sorry,
minimum to the maximum of the current 300,000 bytes and a quarter of the long-term median.
Now, I have seen discussion of proposals that go higher than that, and they're quite interesting.
In fact, one of the proposals, I think, has a similar implication to that.
This should be discussed and looked at, because they're quite interesting.
But this proposal basically involves a quarter of the long-term median.
The next thing we do is we change the median and fee-for-no-relay. This is more of an anti-spam
measure. The thing to bear in mind here is that if you have a series of transactions that are not
minable, you can literally launch a DDoS attack against the network. So basically what you do
is you flood the network with a mass of transactions which are under the not-going-to-get
mind. And this is one of the reasons why you have a minimum fee. So that's the danger there. There
is a potential attack in that, and that's the reason why you do that. You basically want to
set that relay fee for the node so that there's a really good chance the transaction gets mined.
Now, obviously, if you're sitting at one-tenth of the penalty-free zone, which we are right now,
well, a fee of 20% of the reference transaction is going to get mined. So the attacker has a big risk.
Once you go above it, it starts to get dicey, and you could get scenarios where this could actually
happen. I should point out these attacks have actually occurred on Bitcoin. And if you run a
full Bitcoin node, which I do, with the port open, and you suddenly see this massive surge in
bandwidth, well, wait a minute, Bitcoin protocol is running at capacity. So why is this happening?
These massive transactions that are being transmitted and distributed by the nodes
which are not being mined because the fees are too small. And this type of attack could be done
in Bitcoin to actually push up the fees. But it's exactly a similar kind of problem. So you do have,
and it really has an impact on the node. Suddenly your bandwidth could increase by a factor of 10
or something just as a result of these type of attacks. And I have seen, I've experienced it
myself, I wash my bandwidth, I have unlimited bandwidth and it can get away. But still,
I mean, this is not true. So that's one of the reasons for this type of protection.
A few technical changes with respect to the wallet fees. One of the things that's not well
known about the wallet fees in Monero is that there is an adjustment where we try to shift
the median by 10 blocks. And the idea is to assume the worst possible scenario so that if you
create a transaction, it doesn't change fast enough that you can't send it because the
structure of the median has changed and the fees have gone up. And so this is one of the ideas.
And basically we have a series of fee schedules in there where we would have each level of fee
is protected against changing the median. So the principle here is you keep paying a higher fee,
you get more blocks. If you go all the way, you get like 200,000 blocks of protection,
essentially by paying a higher fee. And the concept is that, for example, you simply say,
okay, if I want just to send my transaction right away within 10 minutes, okay, fine, I go with a
normal fee, the lowest possible fee. And if on the other hand, I wanted to be good for at least
the balance of the short-term median, sorry, long-term median, then I would pay the next one.
I want more, you know, another 100,000 blocks and I keep going up the line.
So the implications are fees are highly predictable. For example, a fee of four
times will ensure the minimum fee is minimal until the drop in the long-term median.
And then you can examine the long-term median and actually predict the worst-case scenario.
Or you can choose a fee all the way. But in reality, there's no free lunch. I mean,
the longer you want to protect this, the more fee you pay. And I should point out,
even increasing this penalty-free zone to something as high as the long-term median,
which I suspect is one of the ideas behind the proposals, will mitigate this even further.
But you still have this principle that the longer you go, you want to go the higher the fee. So if
you want your fee to be minable, like, say, three months down the road, you're going to pay, or four
months down the road, you're going to pay a much higher fee than if you just want to create the
transaction and just send it right to the network. This is the critical impact of the
project. You remove this risk of a sudden collapse of the long-term median. And this is the biggest
issue that I identified. And that is, what happens is, if you let it collapse, then bingo,
you have this massive recovery. Because if you drop all the way down, it could take like two
to three years to get up there. And all of a sudden, in a couple of months, it collapses.
And this is why having this graduated decline in the long-term median is very critical.
And it does allow... this is probably the most critical approach. You do not want that
long-term median to suddenly drop all the way from the top to the bottom. You want it to
go down in steps, the same way it grew up in steps. There's minimal action in the absence
of a sudden drop in transaction. And of course, the reason for this is that the dynamic penalty
fee, so essentially, doesn't even come into play. And another interesting thing is that
you could actually increase the rate to look at transaction growth. And I have a link here,
and this should work. I'm going to link it here, and I'm going to show you the site.
And you should see... there we go. Okay, so if I go on the link here, and I'll see the
site. And you should see the site here on the screen. And basically, if you look at transactions,
you're going to see that there is a very significant trend on the screen here. And again,
we will see what we're seeing in this scenario. So I will close this out right now. This is come up.
Yes, it comes up here, and we will then go out again.
Okay, and we will close these out.
There, and we should see the proposal again. So again, if you click on the link,
you will see the transaction rates. And this is actually a way to see what happens if you actually...
you can actually look at the transactions, and you can see basically what the trends are.
What you'll find is that some of the recent trends are very close to the maximum rate of the
long-term median. Okay, so now we are going to look at some implications again.
If we increase the minimum relay fee, this mitigates against flood XMR types of attacks.
Now, I started a second here, and I would say that flood XMR is potentially the bigger threat
than Big Bang, simply because it's a motivation. Now, also flood XMR is easiest to mitigate,
because what you do is you simply increase the... if you increase the ring size, then you turn
around and you increase the cost to the attacker, and essentially relative to the defense. And
that's a factor of the attack. But we've got to bear in mind that this minimum relay fee also
mitigates against these types of attacks. I've included a link to the proposal specification
here. And again, you can go to the... and take a look at it there.
And I've been looking for some questions and discussion.
So I will turn it back to the moderator if there's any questions that I need to answer,
or any discussion.