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660	6240	So I would like to introduce Francisco Cabanas, otherwise known as ArcticMine. He is on the
6240	11280	Monero core team. He's going to be speaking with us about the economic impact of COVID-19
11280	15480	and transaction capacity and fees in Monero. So I'm going to go ahead and pass that on over to
15480	20740	him. ArcticMine, go ahead and take it away. Thank you. Thank you for the great introduction.
21020	28820	So the topic that I'm going to be speaking today is about drastic external impacts
28820	33920	on the Monero network, high response, and what kind of impacts they would have.
34160	39640	Now, the initial scenario that I'm looking at, we're going to have a scenario,
39640	45400	and then we're looking at the aftermath, what happens. So you throw a disruption, aftermath,
45400	49560	what happens if you don't change the protocol, have a proposal, implications of the proposal,
49560	57920	and then some questions and discussion. So what actually started the scenario was an issue raised
57920	66460	by user Yukoi HB, and actually a very important issue. And I'm going to quote what he said,
66460	71080	and this is quoting straight from the GitHub issue. Imagine adoption humming along and the
71080	76540	long-term median gets really high, say 100 times the current default penalty-free zone.
76740	83200	Suddenly, catastrophe hits, and several major sources of transaction volume are taken offline.
83200	88860	Short-term transaction volume collapses to five times the default penalty-free zone,
88860	95000	and nominal fees are practically 20 times higher. Now, the scenario we're talking about is about
95000	104720	1,000 times of the transaction activity in Monero. This came up in February, just before the awareness
104720	112780	of COVID-19. And then within a few days after the issue came, the start of the awareness of COVID-19,
112780	118300	which is actually a perfect example for the issue. Pandemics was not referred in the particular
118300	125520	issue, and I have a link below to GitHub for the research project issue, and I would suggest that
125520	130180	there we could do a lot of also discussion on some of the technical solutions.
132100	138720	Now, Monero has a long-term median, and it changes every... it's 100,000 blocks,
138720	144660	so it changes up to 50,000 blocks, and that's around 69 days. It's about a couple of months
144660	152780	and a week. And this is an important time frame to consider, because what's happening here is that
154720	159740	at that point in time, it changes, and it's a scenario, and it has very significant impacts.
159880	166020	And we're going to look at possible causes of an external disruption. Now, for example,
166020	170680	one of the measures is a disruption of various Monero markets that believe in the issue. One
170680	175560	of the issues that was mentioned was, for example, a closure of a very big
176320	185420	DNN market, and what impact that would have on transactions. And then this category, I would say,
185420	192480	is an impact that doesn't impact the traditional finance system. The second group that I'm
192480	198440	including, which impacts on the international finance system, would be things like COVID-19,
198440	202280	and the awareness that you have of the issue. The issue I should discuss, the possibility was
202280	207060	of a limited nuclear war, and the kind of consequences of that, national disaster,
207060	212760	major economic disruption. What we're talking about here is events, external events,
212760	219800	that cause major economic disruption, and how that will impact the Monero network,
219800	227220	and also, in particular, how will it impact the fee structure, and how we can respond to it,
227220	233800	and some changes that are needed to do that. Now, the next slide is really interesting,
235360	243540	because we are considering a very sizable series of scenarios. One thing I should mention in the
243540	250960	previous slide, the numbers we're talking about will have a very high fee, sorry, a very high
250960	257260	price on Monero. So there's no recovery, or a very long, slow recovery. So this is where
257820	264020	you see the collapse in transaction rates, and it just sort of dies there, and nothing happens,
264020	267840	and maybe a few years down the road starts to recover again. And the DNM market is a good
267840	274620	example of that. And so in that case, you basically have, in that scenario,
275240	278380	relatively little impact on the network, you do have the fee impact.
279080	283040	The next one is a recovery within the long-term median, and that means that
283040	291040	you drop, and then you come back up again within the 69-day time frame. And that means that the
291040	295660	recovery level for transactions within the Monero network is really only five times,
295660	301120	could be as high as five times. And then the third example is we start a long-term median,
301120	305320	and it collapses completely, and then we are going back, we have to recover
305320	310640	the full 20 times in the example, plus, say, an additional five times.
310680	317700	The key to understand is this, an impact of the event on traditional finance. So if it impacts
317700	322180	the banking system, if it impacts financial, can also have a significant impact on transaction
322180	328420	demand, and this is going to show up in the recovery phase. So when we're trying to come out
328420	332480	of this, all of a sudden everybody wants to use Monero because there's problems in the banking
332480	338480	system. So not only do we have to deal how we get the median back up again to where we were,
338480	342620	but now we have all this additional demand because the other guys are having problems.
345270	347030	So let's look at the examples.
349170	355510	Let's say that there's no impact on traditional finance. So in this example,
355510	359990	this interruption of the Monero markets, the likely result is no recovery.
361150	367450	So it's a long process. So basically, you have replacing markets come up, even a possible
367450	373350	negative impact. You basically have a long recovery, and nothing particularly happens in
373350	379910	this scenario that really requires a lot of impact on the protocol, except for the fee question.
382010	386370	Let's look at the COVID-19 example. This is a great example of the external
387150	392930	scenario. So what are we looking at here? Well, either it's going to recover right within the
395150	400070	two months to 69 time frame, in which case, and then you get the demand,
400070	409710	or maybe it's a bit delayed. And then you have the full collapse in the long-term medium,
409710	415470	and this is critical. And then you have to make up not just 20 times the transaction, but maybe
415470	421110	100 times. So you really have a big upswing afterwards. You suddenly have to ramp up the
421110	426110	whole network, not just because of the impact, but now because everybody else wants to use Monero
426110	430290	because there's a problem somewhere else. And that's the key distinction when you're impacting
430290	439770	traditional finance. So the other two examples, the limited nuclear war or the... do parallel
439770	445470	this in a similar way, or can parallel it, as it will be, say, a very disruptive volcanic eruption,
445470	452210	this kind of things, can actually have a similar impact economically, and the parameters are
452210	456790	comparable. I will focus primarily on COVID-19 simply because we're living right through it.
456790	464970	This is a perfect example of the type of scenario. So we step back for a moment and ask the question,
464970	471390	what exactly did COVID-19 do to the Monero network? Well, what did it have... did the
471390	477730	standard Monero stop functioning? Well, no. Did the blocks stop being mined? No, the miners shut down.
477730	483170	No. Did the developers shut down? Did the functionality of the community shut down?
483170	487870	To most extent, no. The only thing, basically, we're seeing a significant impact is the fact that
487870	492510	we're delivering these stocks virtually. We did have to cancel Confranco in Berlin.
492690	500610	So we had some impact, but relatively minor. The core components of the community,
501010	506190	of the network, the clearance of transactions, all this happened, no problems.
506870	513870	Now, compare that with the banking system. Bank hours were changed, bank branches were closed,
513870	518470	lineups outside, people wearing masks, plexiglass screens on the tellers.
518770	525730	When you look at the impact, they're way more significant. We take a look at payments. Well,
525730	531190	the biggest one, actually, is that we've been in card payments, an increase from
531770	537330	in card type and a drastic fall in chip and PIN. So there's been this movement in the type of
537330	543070	credit card transaction. There's been some drop in cash. Part of the idea being is that certain
543070	549550	types of payments are perceived to be propagating the COVID-19. And obviously, if you're sitting on
549910	554910	a pin pad and inserting a card and fiddling with the terminal and touching all the absolute tips
554910	559790	of your fingers, your chances of spreading the virus are much higher than if you just
560310	566270	bring the card to the terminal and don't touch anything. And this is a so-called contactless
566270	571310	card tap. The reality, however, is in a lot of card taps, there's still a lot of fiddling.
571750	575270	And merchants expect you to touch buttons. And I have actually refused to do that. It's quite
575270	580990	interesting. And so that's one element. Then there's cash, which is kind of in between,
580990	588490	obviously better, worse than a totally contactless card tap, but far better than chip and PIN.
589250	594110	And in this picture, you consider a cryptocurrency payment. Now cryptocurrency payment,
594110	597930	in order to use it, you have to be contactless, because basically what you're doing is you're
597930	601030	aligning QR codes. So you've got your phone, you're going to align the QR code, you're going
601030	605770	to do it at a distance. It does not work if you touch it. So this is really interesting.
605770	609870	If you want to pay with Monero, you can't propagate the virus. You have to go out of
609870	617720	your way to do it. With the other payments, you can't. Well, the other ultimate best. Well,
617720	622680	major unemployment, business failures. You walk around the city, all these businesses are
622680	627200	closing. Massive increase in government debt. Governments have responded to the problem by
627200	634040	going into debt and trying to mitigate the impacts. And a massive intervention by the
634040	641160	central banks on increasing the money, the fiat money supply. This is mitigated. It's fine. It's
641160	647540	mitigated to some degree, but it also has long-term implications. One major impact, obviously, is if
647540	652080	you increase the number of unemployed people, you're going to disrupt car payments. And the
652080	655440	reason you're going to do that is because people are going to suddenly lose their credit scores,
655440	658700	and they're not going to be able to have credit cards, or they're going to be afraid that their
658700	663880	debit account in the bank is going to be seized. So there's going to be a push towards cryptocurrencies
663880	669360	just from this element. I don't even want to consider what could possibly happen if
669360	673480	it's a major disruption of the banking system, and we still haven't got to that stage.
674720	680760	Everything is kind of okay, maybe. The Federal Reserve and the European Central Bank,
680760	685920	the Bank of England, the Bank of Canada, they're trying a very delicate job between hyperinflation
685920	691260	on one side and collapse of financial institutions on the other. It's a delicate position. I honestly
691260	696180	would not want to be in their shoes for what they're doing. It's a lot easier dealing with
696180	704080	the Monero side of this. So one possible impact is a significant shift towards the use of
704080	710120	cryptocurrency in payments. And this would be way greater in the original scenario, but could
710120	715280	even occur in the current situation. So what you can see is that there's a demand on the Monero
715280	722020	network, even as it is right now. And in many ways, this is a bit of a warning. And if something
722020	727580	were to happen with the Federal Reserve and the banking system, something were to happen,
727580	732200	even in a smaller country, we could suddenly face ourselves with significant demand on transaction.
733180	738920	The story is not being ended on this. So we still have the possibility of the risk
739360	743200	of having to deal. And that means at every level. Everything from helping newbies on how to
743200	748740	set up their wallets, to making sure your notes are up to snuff, to cleaning,
749300	755680	upgrading your internet connection. I mean, the reality is we could find ourselves having to roll
755680	760360	up our sleeves at every level in the community. Just as the result is just because of these
760360	767440	disruptions, there's suddenly a big demand on the network. So now let's take a look at what happens.
768140	772240	No changes to the protocol. So we look at the protocol right now. First of all, in this scenario,
772240	778520	and it's very important, we're doing a thousand times increase in the Monero transaction volume,
778520	785120	because basically we are running right now about a tenth of the penalty free zone. So we're talking
785120	793170	about basically 30 megabytes versus 30 kilobytes that we have today in transaction volume.
794300	799100	One of the implications of this is if you look at the equation of exchange
799800	803750	and you make some reasonable assumptions, and no change in velocity,
805790	813670	and a constant, then we're talking about a potential price for Monero of around 100,000
813670	818650	US dollars. This sounds significant, but if you're going to increase the transaction
818650	826650	capacity demand of the Monero network by a factor of a thousand, and it's fair to realize that
827350	832750	assuming the velocity doesn't change and it hasn't come from somewhere, and the distribution
832750	839990	doesn't change, so obviously the only thing you can move is the price. So now if you increase Q
839990	844370	by a factor of a thousand, you've got a decreased P by a factor of a thousand, which is the inverse.
844370	849010	So effectively what we say instead of $100, it's $100,000. Now there's variability. It could be
849010	854630	$10,000, it could be a million, but there is definitely a factor here. And quite honestly,
854630	859430	I mean, if a whole bunch of people are transacting the Monero network to that level, then there's
859430	863990	also be a lot of investors are suddenly going to be interested in this cryptocurrency that's
863990	869930	actually working and that you can actually use. To put it in another way, you have a practical
869930	875930	use scenario in place. The thing to understand is the fee in current terms will not change
875930	883090	significantly. So our fees would be roughly a bit higher, and this is mainly due to the fact
883090	889130	that we still have the ten-fold increase until we get to the penalty-free zone, which has an impact
889130	895190	on fees. And it's counterbalanced by things such as a drop in the emission-cum-to-tail emission.
895510	901790	And we're going down to also some of the improvements such as CLSAG and so on.
902330	907130	So that's kind of what... so we're talking about $0.04 USD for two-in-two-out transaction,
907690	911570	even though the price has gone up by a factor of a thousand. That's one of the beauties of the
911570	918230	Monero protocol. As you increase the block size, the fee for transaction goes down. So if you have
918230	922310	this assumption, you have essentially a constant fee, close to a constant fee, in terms of
925690	930490	a sort of fixed USD. By the way, I'm talking about USD as of today, so you sort of factor
930490	937110	in any changes in the inflation rate. So what happens if you don't change the protocol? Well,
937110	941550	okay, so the 20% increase in fee, this really goes from, say, $0.04 or $0.80, you'll see.
942190	947970	And the interesting thing there is, the issue can be really disruptive if you have
948830	954450	multi-signature transactions that are created ahead of broadcast. So for example, you create
954530	959270	a transaction, you have multiple signatures, you engage in some business arrangements,
959270	963610	and then like three weeks later or five weeks later or something, you want to
963610	968090	broadcast that transaction, and now the fees have changed on you. And that was one of the
968090	971370	main factors in the protocol question. I mean, you know, how do we deal with these situations?
971370	976410	And that's the fee impact question. So there's a real need for minimum fee predictability for
976490	981330	a given period of time. And as I said, the free impact applies to all three recovery scenarios.
983270	987950	So the white economy, where you have first number one, no recovery, very slow recovery,
989230	992570	the recovery is fine. I mean, there's no real stress on the protocol,
992990	998210	but the fee issue remains. We're just dropping it and we're not really suddenly putting more
998210	1003430	demands on the network. Now, in the second case, it starts to get a bit more interesting,
1003430	1010230	because what happens there is you suddenly have a five times increase in demand scenario.
1012090	1018090	So you're pushing your protocol. So you can kind of manage it, but it's far from ideal.
1018090	1022690	You're pushing the limits of the growth rate of the long-term median, depending on the rate.
1022970	1026430	So that's a bit tight, and you still have the fee issue.
1026930	1030410	It's kind of possible, not ideal, but manageable.
1032530	1039670	But the part serious problem is this one. What happens with the third example? Now you drop
1039670	1047530	the long-term median by a factor of 20. So you drop down, and now to recover back again,
1048090	1054870	you have to go into this two to three year period just to get back to where you were,
1054870	1059490	and then also to then allow for the addition. It's just too slow to recover. So you don't have
1059590	1065330	a recovery protocol. You drop, you can think of it as a big bang attack in reverse,
1065330	1070230	where you actually suddenly drop the transaction, and it has real consequences.
1070330	1075910	And this is actually a real serious problem that was identified in this issue indirectly,
1075910	1082330	but definitely very good. So what are we going to do in the proposal? Well, number one,
1082330	1088070	we increase the growth of the long-term median of 1.2x to 2x. That alone will address these kind
1088070	1093650	of recovery issues to a significant degree. It's about 30 times versus five times in a year. So
1093650	1097530	there's a real increase in the rate of growth, and that's important.
1098310	1105530	It gives you that flexibility, that ability. Now there is a 50 plus factor in there for searching,
1105530	1110510	but that's okay. B, and this is the critical part, you limit the decay of the long-term median to
1110510	1117310	half. So what we say is, at the end of that 20-time drop, we don't drop the whole thing all
1117310	1123130	down to 24, we just drop it to four. And then we wait another 69 days and drop it to four again,
1123130	1132030	and so on. And then the third proposal was to set the penalty-free zone to the maximum, sorry,
1132030	1139990	minimum to the maximum of the current 300,000 bytes and a quarter of the long-term median.
1139990	1145230	Now, I have seen discussion of proposals that go higher than that, and they're quite interesting.
1145450	1149710	In fact, one of the proposals, I think, has a similar implication to that.
1149890	1152450	This should be discussed and looked at, because they're quite interesting.
1152530	1157030	But this proposal basically involves a quarter of the long-term median.
1159540	1164740	The next thing we do is we change the median and fee-for-no-relay. This is more of an anti-spam
1164740	1174140	measure. The thing to bear in mind here is that if you have a series of transactions that are not
1174140	1179020	minable, you can literally launch a DDoS attack against the network. So basically what you do
1179020	1186380	is you flood the network with a mass of transactions which are under the not-going-to-get
1186380	1191360	mind. And this is one of the reasons why you have a minimum fee. So that's the danger there. There
1191360	1198280	is a potential attack in that, and that's the reason why you do that. You basically want to
1198280	1204080	set that relay fee for the node so that there's a really good chance the transaction gets mined.
1204080	1209900	Now, obviously, if you're sitting at one-tenth of the penalty-free zone, which we are right now,
1209900	1219740	well, a fee of 20% of the reference transaction is going to get mined. So the attacker has a big risk.
1219740	1225620	Once you go above it, it starts to get dicey, and you could get scenarios where this could actually
1225620	1232860	happen. I should point out these attacks have actually occurred on Bitcoin. And if you run a
1232860	1240480	full Bitcoin node, which I do, with the port open, and you suddenly see this massive surge in
1240480	1244860	bandwidth, well, wait a minute, Bitcoin protocol is running at capacity. So why is this happening?
1244860	1249300	These massive transactions that are being transmitted and distributed by the nodes
1249300	1255260	which are not being mined because the fees are too small. And this type of attack could be done
1255260	1261540	in Bitcoin to actually push up the fees. But it's exactly a similar kind of problem. So you do have,
1261540	1265760	and it really has an impact on the node. Suddenly your bandwidth could increase by a factor of 10
1265760	1270900	or something just as a result of these type of attacks. And I have seen, I've experienced it
1270900	1275640	myself, I wash my bandwidth, I have unlimited bandwidth and it can get away. But still,
1275640	1281760	I mean, this is not true. So that's one of the reasons for this type of protection.
1283380	1288860	A few technical changes with respect to the wallet fees. One of the things that's not well
1288860	1295980	known about the wallet fees in Monero is that there is an adjustment where we try to shift
1295980	1300540	the median by 10 blocks. And the idea is to assume the worst possible scenario so that if you
1300540	1304480	create a transaction, it doesn't change fast enough that you can't send it because the
1307280	1311260	structure of the median has changed and the fees have gone up. And so this is one of the ideas.
1312180	1318260	And basically we have a series of fee schedules in there where we would have each level of fee
1319940	1325660	is protected against changing the median. So the principle here is you keep paying a higher fee,
1325660	1329960	you get more blocks. If you go all the way, you get like 200,000 blocks of protection,
1329960	1337160	essentially by paying a higher fee. And the concept is that, for example, you simply say,
1337160	1342240	okay, if I want just to send my transaction right away within 10 minutes, okay, fine, I go with a
1342240	1347660	normal fee, the lowest possible fee. And if on the other hand, I wanted to be good for at least
1347660	1353580	the balance of the short-term median, sorry, long-term median, then I would pay the next one.
1353580	1358100	I want more, you know, another 100,000 blocks and I keep going up the line.
1359340	1363080	So the implications are fees are highly predictable. For example, a fee of four
1363080	1366320	times will ensure the minimum fee is minimal until the drop in the long-term median.
1367280	1370660	And then you can examine the long-term median and actually predict the worst-case scenario.
1370800	1375420	Or you can choose a fee all the way. But in reality, there's no free lunch. I mean,
1375420	1380560	the longer you want to protect this, the more fee you pay. And I should point out,
1380560	1388300	even increasing this penalty-free zone to something as high as the long-term median,
1388300	1392440	which I suspect is one of the ideas behind the proposals, will mitigate this even further.
1392440	1398040	But you still have this principle that the longer you go, you want to go the higher the fee. So if
1398040	1403420	you want your fee to be minable, like, say, three months down the road, you're going to pay, or four
1403420	1406840	months down the road, you're going to pay a much higher fee than if you just want to create the
1406840	1414350	transaction and just send it right to the network. This is the critical impact of the
1414350	1417990	project. You remove this risk of a sudden collapse of the long-term median. And this is the biggest
1417990	1423470	issue that I identified. And that is, what happens is, if you let it collapse, then bingo,
1424410	1427870	you have this massive recovery. Because if you drop all the way down, it could take like two
1427870	1431550	to three years to get up there. And all of a sudden, in a couple of months, it collapses.
1431890	1437430	And this is why having this graduated decline in the long-term median is very critical.
1437430	1442270	And it does allow... this is probably the most critical approach. You do not want that
1442270	1446430	long-term median to suddenly drop all the way from the top to the bottom. You want it to
1446430	1453430	go down in steps, the same way it grew up in steps. There's minimal action in the absence
1453430	1456670	of a sudden drop in transaction. And of course, the reason for this is that the dynamic penalty
1456670	1465490	fee, so essentially, doesn't even come into play. And another interesting thing is that
1465490	1472170	you could actually increase the rate to look at transaction growth. And I have a link here,
1472170	1475510	and this should work. I'm going to link it here, and I'm going to show you the site.
1476530	1484010	And you should see... there we go. Okay, so if I go on the link here, and I'll see the
1485530	1492810	site. And you should see the site here on the screen. And basically, if you look at transactions,
1493730	1506350	you're going to see that there is a very significant trend on the screen here. And again,
1506350	1513930	we will see what we're seeing in this scenario. So I will close this out right now. This is come up.
1515550	1520790	Yes, it comes up here, and we will then go out again.
1523010	1528410	Okay, and we will close these out.
1530960	1536220	There, and we should see the proposal again. So again, if you click on the link,
1536220	1545160	you will see the transaction rates. And this is actually a way to see what happens if you actually...
1547360	1552720	you can actually look at the transactions, and you can see basically what the trends are.
1552720	1557000	What you'll find is that some of the recent trends are very close to the maximum rate of the
1557960	1566660	long-term median. Okay, so now we are going to look at some implications again.
1567000	1572320	If we increase the minimum relay fee, this mitigates against flood XMR types of attacks.
1572320	1577820	Now, I started a second here, and I would say that flood XMR is potentially the bigger threat
1577820	1583660	than Big Bang, simply because it's a motivation. Now, also flood XMR is easiest to mitigate,
1583660	1588060	because what you do is you simply increase the... if you increase the ring size, then you turn
1588060	1593720	around and you increase the cost to the attacker, and essentially relative to the defense. And
1593720	1601940	that's a factor of the attack. But we've got to bear in mind that this minimum relay fee also
1601940	1607160	mitigates against these types of attacks. I've included a link to the proposal specification
1607160	1610920	here. And again, you can go to the... and take a look at it there.
1613440	1615980	And I've been looking for some questions and discussion.
1616780	1621720	So I will turn it back to the moderator if there's any questions that I need to answer,
1621720	1622800	or any discussion.